PART B
VANGUARD® TRUSTEES’ EQUITY 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 a Fund’s current prospectus (dated February 27, 2026). To obtain, without charge, a prospectus, the most recent report to shareholders, or a 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 Trustees’ Equity Fund (the Trust) currently offers the following funds and share classes (identified by ticker symbol):
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Vanguard Fund2
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Share Classes1
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Investor
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Admiral
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Vanguard Diversified Equity Fund
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VDEQX
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Vanguard International Value Fund
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VTRIX
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Vanguard Emerging Markets Select Stock Fund
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VMMSX
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Vanguard Commodity Strategy Fund
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VCMDX
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Vanguard Global Environmental Opportunities Stock Fund
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VEOIX
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VEOAX
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Individually, a class; collectively, the classes.
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2
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Individually, a Fund; collectively, the Funds.
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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.
Each Fund offers only one class of shares. Throughout this document, any references to “class” indicate how a Fund would operate if, in the future, the Fund issued more than one class of shares.
Organization
The Trust was organized as a Maryland corporation in 1979, was reorganized as a Pennsylvania statutory trust in 1984, and then was reorganized as a Delaware statutory trust in 1998. Prior to its reorganization as a Delaware statutory trust, the Trust was known as Vanguard/Trustees’ Equity 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. All Funds within the Trust, other than Vanguard Global Environmental Opportunities Stock Fund, are classified as diversified within the meaning of the 1940 Act. Vanguard Global Environmental Opportunities Stock Fund is classified as nondiversified within the meaning of the 1940 Act.
Service Providers
Custodians. JPMorgan Chase Bank, N.A., 383 Madison Avenue, New York, NY 10179 (for Vanguard Diversified Equity Fund and Vanguard International Value Fund) and State Street Bank and Trust Company, One Congress Street, Suite 1, Boston, MA 02114 (for Vanguard Commodity Strategy Fund, Vanguard Global Environmental Opportunities Stock Fund, and Vanguard Emerging Markets Select Stock Fund) serve as the Funds’ custodians. The custodians are responsible for maintaining the Funds’ assets, keeping all necessary accounts and records of Fund assets, and appointing any foreign subcustodians or foreign securities depositories.
Investment Advisors. Altrinsic Global Advisors, LLC, 300 First Stamford Place, Stamford, CT 06902 (for a portion of Vanguard International Value Fund); ARGA Investment Management, LP, 1010 Washington Boulevard, 6th Floor, Stamford, CT 06901 (for a portion of Vanguard International Value Fund); Baillie Gifford Overseas Ltd., Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, Scotland (for a portion of Vanguard Emerging Markets Select Stock Fund); Ninety One North America, Inc., 65 East 55th Street, 30th Floor, New York, NY 10022 (for Vanguard Global Environmental Opportunities Stock Fund); Pzena Investment Management, LLC, 320 Park Avenue, 8th Floor, New York, NY 10022 (for a portion of Vanguard Emerging Markets Select Stock Fund); Sprucegrove Investment Management Ltd., 181 University Ave., Suite 1300, Toronto, Ontario, Canada, MH5 3M7 (for a portion of Vanguard International Value Fund); Wellington Management Company LLP, 280 Congress Street, Boston, MA 02210 (for a portion of Vanguard Emerging Markets Select Stock Fund); The Vanguard Group, Inc., P.O. Box 2600, Valley Forge, PA 19482, through its wholly owned subsidiary, Vanguard Capital Management, LLC (VCM) (for Vanguard Diversified Equity Fund); and The Vanguard Group, Inc. through its wholly owned subsidiaries, Vanguard Capital Management, LLC and Vanguard Portfolio Management, LLC (VPM) (for Vanguard Commodity Strategy Fund).VCM (for Vanguard Diversified Equity Fund) and VCM and VPM (for Vanguard Commodity Strategy Fund) exercise portfolio management and investment stewardship responsibilities.
Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1800, 2001 Market Street, Philadelphia, PA 19103-7042, serves as the Funds’ independent registered public accounting firm. The independent registered public accounting firm audits the Funds’ annual financial statements and provides other related services.
Transfer and Dividend-Paying Agent. The Funds’ transfer agent and dividend-paying agent is Vanguard, P.O. Box 2600, Valley Forge, PA 19482.
Characteristics of the Funds’ Shares
Restrictions on Holding or Disposing of Shares. There are no restrictions on the right of shareholders to retain or dispose of a Fund’s shares, other than those described in the Fund’s current prospectus and elsewhere in this Statement of Additional Information. Each 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, each Fund and share class 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 a 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 a Fund are entitled to receive any dividends or other distributions declared by the Fund for each such class. No shares of a 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 a 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 a Fund’s net assets, to change any fundamental policy of a Fund (please see Fundamental Policies), and to enter into certain merger transactions. Unless otherwise required by applicable law, shareholders of a 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 a 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 a 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 Funds’ shares.
Conversion Rights. Shareholders of Vanguard Global Environmental Opportunities Stock Fund may convert their shares into another class of shares of the same Fund upon satisfaction of any then-applicable eligibility requirements, as described in the Fund’s current prospectus. There are no conversion rights associated with Vanguard Diversified Equity Fund, Vanguard International Value Fund, Vanguard Emerging Markets Select Stock Fund, or Vanguard Commodity Strategy Fund.
Redemption Provisions. Each Fund’s redemption provisions are described in its current prospectus and elsewhere in this Statement of Additional Information.
Sinking Fund Provisions. The Funds have no sinking fund provisions.
Calls or Assessment. Each 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 Funds
Each 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, each Fund must comply with certain requirements relating to the source of its income and the diversification of its assets. If a 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, a 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 each 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 a Fund’s securities lending transactions, including substitute dividend payments received by a 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 each Fund on its REIT holdings may be eligible to be reported by each 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 each 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 a Fund’s securities lending transactions, including substitute dividend payments received by a Fund with respect to a security out on loan, will not be eligible for the dividends-received deduction.
Each 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
Each 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. Each 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. Each 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. Vanguard Diversified Equity Fund will limit the aggregate value of its holdings (other than U.S. government securities, cash, and cash items, as defined under subchapter M of the IRC, and securities of other regulated investment companies), each of which exceeds 5% of the Fund’s total assets or 10% of the issuer’s outstanding voting securities, to an aggregate of 50% of the Fund’s total assets as of the end of each quarter of the taxable year. Additionally, the Fund will limit the aggregate value of holdings of a single issuer (other than U.S. government securities, as defined in the IRC, or the securities of other regulated investment companies) to a maximum of 25% of the Fund’s total assets as of the end of each quarter of the taxable year.
With respect to 75% of its total assets, Vanguard International Value Fund, Vanguard Emerging Markets Select Stock Fund, and Vanguard Commodity Strategy 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. Each Fund (except Vanguard Global Environmental Opportunities Stock Fund) will not concentrate its investments in the securities of issuers whose principal business activities are in the same industry or group of industries.
Vanguard Global Environmental Opportunities Stock Fund will concentrate its investments in the securities of issuers whose principal business activities are in “climate change-related industries”.1
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1Although not part of the Fund’s fundamental restriction related to industry concentration, for purposes of the industry concentration policy above, the Fund considers climate change-related industries to include renewable energy, electrification, resource efficiency, and similar industries as determined in good faith by the advisor and any of their sub-industries, such as solar energy, electric vehicles, or waste management and businesses that service such industries.
Loans. Each 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. Each 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. Each 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. Each 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 prevents the Funds from having an ownership interest in Vanguard. As a part owner of Vanguard, each 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 Funds for more information.
INVESTMENT STRATEGIES, RISKS, AND NONFUNDAMENTAL POLICIES
Some of the investment strategies and policies described on the following pages and in each Fund’s prospectus set forth percentage limitations on a 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 each Fund’s investment strategies, risks, and policies set forth in the prospectus. With respect to the different investments discussed as follows, a Fund may acquire such investments to the extent consistent with its investment strategies and policies.
Vanguard Diversified Equity Fund is indirectly exposed to the investment strategies and policies of the underlying Vanguard funds in which it invests and is therefore subject to all risks associated with the investment strategies and policies of the underlying Vanguard funds. The investment strategies and policies and associated risks detailed in this section also include those to which Vanguard Diversified Equity Fund indirectly may be exposed through its investment in the underlying Vanguard funds.
Bank Loans, Loan Interests, and Direct Debt Instruments. Bank loans, loan interests, and direct debt instruments are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates (in the case of loans and loan participations); to suppliers of goods or services (in the case of trade claims or other receivables); or to other parties. These investments involve a risk of loss in case of default, insolvency, or the bankruptcy of the borrower; may not be deemed to be securities under certain federal securities laws; and may offer less legal protection to the purchaser in the event of fraud or misrepresentation, or there may be a requirement that a purchaser supply additional cash to a borrower on demand.
Purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of interest and repayment of principal. Direct debt instruments may not be rated by a rating agency. If scheduled interest or principal payments are not made, or are not made in a timely manner, the value of the instrument may be adversely affected. Loans that are fully secured provide more protections than unsecured loans in the event of failure to make scheduled interest or principal payments. However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the borrower’s obligation or that the collateral could be liquidated. Indebtedness of borrowers whose creditworthiness is poor involves substantially greater risks and may be highly speculative. Borrowers
that are in bankruptcy or restructuring may never pay off their indebtedness, or they may pay only a small fraction of the amount owed. Direct indebtedness of countries, particularly developing countries, also involves a risk that the governmental entities responsible for the repayment of the debt may be unable, or unwilling, to pay interest and repay principal when due.
Corporate loans and other forms of direct corporate indebtedness in which a fund may invest generally are made to finance internal growth, mergers, acquisitions, stock repurchases, refinancing of existing debt, leveraged buyouts, and other corporate activities. A significant portion of the corporate indebtedness purchased by a fund may represent interests in loans or debt made to finance highly leveraged corporate acquisitions (known as “leveraged buyout” transactions), leveraged recapitalization loans, and other types of acquisition financing. Another portion may also represent loans incurred in restructuring or “work-out” scenarios, including super-priority debtor-in-possession facilities in bankruptcy and acquisition of assets out of bankruptcy. Loans in restructuring or work-out scenarios may be especially vulnerable to the inherent uncertainties in restructuring processes. In addition, the highly leveraged capital structure of the borrowers in any such transactions, whether in acquisition financing or restructuring, may make such loans especially vulnerable to adverse or unusual economic or market conditions.
Loans and other forms of direct indebtedness generally are subject to restrictions on transfer, and only limited opportunities may exist to sell them in secondary markets. As a result, a fund may be unable to sell loans and other forms of direct indebtedness at a time when it may otherwise be desirable to do so or may be able to sell them only at a price that is less than their fair value.
Investments in loans through direct assignment of a financial institution’s interests with respect to a loan may involve additional risks. For example, if a loan is foreclosed, the purchaser could become part owner of any collateral and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is at least conceivable that, under emerging legal theories of lender liability, a purchaser could be held liable as a co-lender. Direct debt instruments may also involve a risk of insolvency of the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless the purchaser has direct recourse against the borrower, the purchaser may have to rely on the agent to apply appropriate credit remedies against a borrower under the terms of the loan or other indebtedness. If assets held by the agent for the benefit of a purchaser were determined to be subject to the claims of the agent’s general creditors, the purchaser might incur certain costs and delays in realizing payment on the loan or loan participation and could suffer a loss of principal and/or interest.
Direct indebtedness may include letters of credit, revolving credit facilities, or other standby financing commitments that obligate purchasers to make additional cash payments on demand. These commitments may have the effect of requiring a purchaser to increase its investment in a borrower when it would not otherwise have done so, even if the borrower’s condition makes it unlikely that the amount will ever be repaid.
A fund’s investment policies will govern the amount of total assets that it may invest in any one issuer or in issuers within the same industry. For purposes of these limitations, a fund generally will treat the borrower as the “issuer” of indebtedness held by the fund. In the case of loan participations in which a bank or other lending institution serves as financial intermediary between a fund and the borrower, if the participation does not shift to the fund the direct debtor-creditor relationship with the borrower, SEC interpretations require the fund, in some circumstances, to treat both the lending bank or other lending institution and the borrower as “issuers” for purposes of the fund’s investment policies. Treating a financial intermediary as an issuer of indebtedness may restrict a fund’s ability to invest in indebtedness related to a single financial intermediary, or a group of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies and industries.
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.
Commodity Futures. Commodities are raw materials used to create the goods that consumers buy. They include a wide range of physical assets, such as agricultural products, livestock, precious metals, energy products, and industrial metals. Commodities can be purchased for immediate delivery (“on the spot”) or delivered at a specific time in the future under the terms of a commodity futures contract. An exchange-traded commodity futures contract is a derivative that provides for the purchase and sale of a specified type and quantity of a commodity during a stated delivery month for a fixed price. A futures contract on an index of commodities provides for the payment and receipt of cash based on the level of the index at settlement or liquidation of the contract. Futures contracts, by their terms, have stated expirations, and at a specified point in time prior to expiration, trading in a futures contract for the current delivery month will cease. As a result, an investor wishing to maintain exposure to a futures contract on a particular commodity with the nearest expiration must close out the position in the expiring contract and establish a new position in the contract for the next delivery month, a process referred to as “rolling.” The process of rolling a futures contract can be profitable or unprofitable depending in large part on whether the futures price for the next delivery month is less than or more than the price of the expiring contract. If the price for the new futures contract is less than the price of the expiring contract, then the market for the commodity is said to be in “backwardation.” In these markets, roll returns are positive because the proceeds from the expiring futures contract will be greater than the price of the new contract, resulting in a net gain. Roll returns from a long, passive strategy (such as maintaining exposure to a specific commodity futures contract) will be positive when markets are persistently backwardated. The term “contango” is used to describe a market in which the price for a new futures contract is more than the price of the expiring contract. In these markets, roll returns are negative because the proceeds from the expiring futures contract will be less than the price of the new contract, resulting in a net loss. Roll returns from a long, passive strategy will be negative when markets are persistently in contango. Finally, if the market is neither backwardated nor in contango, the roll return will be close to zero.
Commodity futures contracts are subject to the risks of derivatives and futures contracts. Commodity-linked structured notes are subject to the risks of commodity futures contracts and the risks of debt securities. Commodity futures trading is volatile, and even a small movement in market prices could cause large losses. Consequently, an investor in commodity futures could lose all, or substantially all, of the investment in such contracts. The prices of commodity futures are subject to change based on various factors, including, but not limited to, the following: the lack of liquidity; global supply and demand for commodities; congestion; disorderly markets; limitations on deliverable supplies; the participation of hedgers and speculators; domestic and foreign interest rates and investors’ expectations concerning interest rates; domestic and foreign inflation rates and investors’ expectations concerning inflation rates; investment and trading activities of institutional investors; global or regional political, economic, or financial events and situations; government regulation and intervention; technical and operational or system failures; nuclear accidents; terrorism; riots; and natural disasters. In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single business day. These limits are generally referred to as “daily price fluctuation limits,” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “limit price.” Once the limit price has been reached in a particular contract, no trades may be made at a different price. It is not certain how long any such price limits may remain in effect. Limit prices may have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices, consequently affecting the value of commodity futures. Although the performance of commodity futures may be largely independent of the general stock and bond markets, there is no assurance that commodity futures will be consistently independent or noncorrelated. An investment in commodity futures could increase rather than reduce overall portfolio losses during periods when commodity futures as well as stocks and bonds decline in value. There is no way of predicting whether commodity futures will lose more or less than stocks and bonds in declining markets.
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.
Debt Securities—Structured and Indexed Securities. Structured securities (also called “structured notes”) and indexed securities are derivative debt securities, the interest rate or principal of which is determined by an unrelated indicator. Indexed securities include structured notes as well as securities other than debt securities. The value of the principal of and/or interest on structured and indexed securities is determined by reference to changes in the value of a
specific asset, reference rate, or index (the reference) or the relative change in two or more references. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased, depending upon changes in the applicable reference. The terms of the structured and indexed securities may provide that, in certain circumstances, no principal is due at maturity and, therefore, may result in a loss of invested capital. Structured and indexed securities may be positively or negatively indexed, so that appreciation of the reference may produce an increase or a decrease in the interest rate or value of the security at maturity. In addition, changes in the interest rate or the value of the structured or indexed security at maturity may be calculated as a specified multiple of the change in the value of the reference; therefore, the value of such security may be very volatile. Structured and indexed securities may entail a greater degree of market risk than other types of debt securities because the investor bears the risk of the reference. Structured or indexed securities may also be more volatile, less liquid, and more difficult to accurately price than less complex securities or more traditional debt securities, which could lead to an overvaluation or an undervaluation of the securities.
Debt Securities—U.S. Government Securities. The term “U.S. government securities” refers to a variety of debt securities that are issued or guaranteed by the U.S. Treasury, by various agencies of the U.S. government, or by various instrumentalities that have been established or sponsored by the U.S. government. The term also refers to repurchase agreements collateralized by such securities.
U.S. Treasury securities are backed by the full faith and credit of the U.S. government, meaning that the U.S. government is required to repay the principal in the event of default. Other types of securities issued or guaranteed by federal agencies and U.S. government-sponsored instrumentalities may or may not be backed by the full faith and credit of the U.S. government. The U.S. government, however, does not guarantee the market price of any U.S. government securities. In the case of securities not backed by the full faith and credit of the U.S. government, the investor must look principally to the agency or instrumentality issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States itself in the event the agency or instrumentality does not meet its commitment.
Some of the U.S. government agencies that issue or guarantee securities include the Government National Mortgage Association, the Export-Import Bank of the United States, the Federal Housing Administration, the Maritime Administration, the Small Business Administration, and the Tennessee Valley Authority. An instrumentality of the U.S. government is a government agency organized under federal charter with government supervision. Instrumentalities issuing or guaranteeing securities include, among others, the Federal Deposit Insurance Corporation, the Federal Home Loan Banks, and the Federal National Mortgage Association. From time to time, uncertainty regarding the status of negotiations in the U.S. government to increase the statutory debt ceiling could increase the risk that the U.S. government may default on payments on certain U.S. government securities, cause the credit rating of the U.S. government to be downgraded, increase volatility in the stock and bond markets, result in higher interest rates, reduce prices of U.S. Treasury securities, and/or increase the costs of various kinds of debt. If a U.S. government-sponsored entity is negatively impacted by legislative or regulatory action, is unable to meet its obligations, or its creditworthiness declines, the performance of a fund that holds securities of the entity may be adversely impacted.
Debt Securities—Variable and Floating Rate Securities. Variable and floating rate securities are debt securities that provide for periodic adjustments in the interest rate paid on the security. Variable rate securities provide for a specified periodic adjustment in the interest rate, while floating rate securities have interest rates that change whenever there is a change in a designated benchmark or reference rate (such as the Secured Overnight Financing Rate (SOFR) or another reference rate) or the issuer’s credit quality. There is a risk that the current interest rate on variable and floating rate securities may not accurately reflect current market interest rates or adequately compensate the holder for the current creditworthiness of the issuer. Some variable or floating rate securities are structured with liquidity features such as (1) put options or tender options that permit holders (sometimes subject to conditions) to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain financial intermediaries or (2) auction-rate features, remarketing provisions, or other maturity-shortening devices designed to enable the issuer to refinance or redeem outstanding debt securities (market-dependent liquidity features). Variable or floating rate securities that include market-dependent liquidity features may have greater liquidity risk than other securities. The greater liquidity risk may exist, for example, because of the failure of a market-dependent liquidity feature to operate as intended (as a result of the issuer’s declining creditworthiness, adverse market conditions, or other factors) or the inability or unwillingness of a participating broker-dealer to make a secondary market for such securities. As a result, variable or floating rate securities that include market-dependent liquidity features may lose value, and the holders of such securities may be required to retain them until the later of the repurchase date, the resale date, or the date of maturity. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such security.
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.
Each Fund (other than Vanguard Commodity Strategy 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 each Fund (other than Vanguard Commodity Strategy Fund) under the CEA. A 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. Vanguard is registered as a CPO and is subject to regulation as a CPO with respect to Vanguard Commodity Strategy Fund.
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 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 or obtain exposure to foreign securities and assets. This may negatively impact the value and/or liquidity of a fund’s investments and could impair a fund’s ability to meet its investment objective or invest in accordance with its investment strategy. Sanctions could also result in the devaluation of a country’s currency, a downgrade in the credit ratings of a country or issuers in a country, or a decline in the value and/or liquidity of securities of issuers in that country.
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—Special Risks of Investing in China. Investing in companies or issuers economically tied to China involves a high degree of risk and special considerations not typically associated with investing in more developed economies or markets. Such risks may include but are not limited to: Chinese Government Risk, Sanctions/Geopolitical Risk, Emerging Market Risk, Chinese Renminbi Risk, Regulatory and Legal Framework Risk, and risks with accessing and investing in their equity and bond markets.
Chinese Government Risk. In China, there are no freely elected government officials and political opposition is largely suppressed. As a result, the Chinese government has an outsized impact on the Chinese market which is uncharacteristic when compared with developed nations. For example, the Chinese government has exercised authority over publicly traded Chinese companies in the past and may continue to do so. This authority can include, but is not limited to, dictating what types of products Chinese companies should produce and to whom such products can be sold, nationalizing assets, and pursuing regulatory enforcement in an unpredictable manner. The Chinese government could use this authority for a variety of reasons including targeting Chinese companies deemed to have violated Chinese interests or trying to reduce market volatility.
The nationalist focus of the Chinese government also can lead to the government making broad policy changes that deviate from what they have historically supported. The Chinese government has implemented several economic reforms since 1978. It is possible that these reforms may not be supported in the future and the government could return to a more centrally planned economy. Additional support to surrounding economies such as Hong Kong could be revoked, and foreign investment in China could be limited if not banned outright.
Sanctions/Geopolitical Risk. Investing in companies economically tied to China is subject to certain political risks. Following the establishment of the People’s Republic of China (PRC) by the Communist Party in 1949, the Chinese government renounced various debt obligations incurred by China’s predecessor governments, which obligations remain in default, and seized assets without compensation. There can be no assurance that the Chinese government will not take similar action in the future, resulting in a full or partial loss of Chinese holdings.
China has many ongoing disputes with Hong Kong, Taiwan, the Xinjiang region and the Uyghur population, and other neighboring areas. These disputes continue to escalate due to ongoing Chinese military exercises (such as land reclamation efforts in the South China Sea), Chinese policymaking, human rights violations assertions by the UN and other developed nations, and statements from high-ranking Chinese government officials. In addition, the Chinese government has been accused of participating in state-sponsored cyberattacks against other foreign countries and foreign companies.
The resulting political tensions, including with the United States, have had and may continue to have impacts on the Chinese economy and its ability to sell certain goods. Other countries, including the U.S., have imposed and may continue to impose sanctions, tariffs, and embargoes or blocking of certain goods produced in China to affect the Chinese economy. Countries have also raised concerns about Chinese companies’ compliance with their own laws which could result in the delisting of securities. Compliance with sanctions could lead to a large market selloff, which could result in significant losses to investments. While tariffs and embargoes are not direct sanctions, they can still negatively affect the Chinese economy and individual Chinese companies. Lastly, because of the economic and financial market dependence between China and the surrounding regions, any decrease in demand for goods from China or an economic downturn in China, could negatively affect the economies and financial markets of the surrounding regions.
Emerging Market Risk. China’s economy is classified as an emerging market. However, China’s economy is considered to be more reliant on exports than other emerging markets and therefore could be negatively affected by a downturn in its export business. Chinese exports could be negatively affected by the aforementioned sanctions and geopolitical risk or other restrictions such as trade tariffs, embargoes, or capital controls. Chinese exports could also be affected by increasing competition across Asia’s other emerging economies, higher rates of inflation, and/or the erratic nature of economic growth in China.
Regulatory and Legal Framework Risk. China’s ability to develop and sustain its legal, tax, regulatory, financial reporting, accounting, and recordkeeping systems could influence the course of foreign investment. Chinese companies are not subject to the same degree of regulation as those in the United States with respect to matters such as tender offer regulation, stockholder proxy requirements, and the requirements mandating timely and accurate disclosure of information. China lacks accounting, auditing, and financial reporting standards, and U.S. public accounting oversight boards are unable to inspect audit work papers and practices of registered accounting firms in China. Further complicating matters, some of China’s laws prohibit certain key information about their companies from being disclosed. As a result, obtaining the full financial picture of a publicly traded Chinese company may be more difficult than obtaining the full financial picture of a publicly traded U.S. company, making it harder to determine the true health of a company.
China’s legal framework may make it more difficult, if not impossible, to obtain or enforce a judgment compared to other countries. The Chinese regulatory framework is also less extensive and still developing regarding business entities and commercial transactions, which can make it challenging to navigate China’s markets. Chinese securities may be taxed differently than U.S. securities depending on the type of investment and the issuer.
Accessing and Investing in the Chinese Equity Market. China’s investment and banking systems are still developing, which subjects the settlement, clearing, and registration of securities transactions to additional risks and costs. Chinese companies can list their shares in a variety of ways, such as A shares, B shares, or H shares. These shares are traded on various exchanges, such as the Shanghai or Shenzhen exchange.
A-shares are generally bought through the Qualified Foreign Investor (QFI) program or Stock Connect. Trading through a license granted under the QFI regime is subject to policies and rules that are unique and evolving. In addition, QFI licenses can be revoked or restricted, preventing a fund from any future trading through the QFI regime. There are QFI custodial arrangements that can limit a fund’s ability to recover deposited cash if the QFI custodian becomes insolvent. Chinese regulators may impose fines or pursue other negative actions towards a QFI custodian if that custodian does not perform its required reporting obligations. Trades do not cross between the Shanghai and Shenzhen stock exchanges and a separate broker is assigned for each exchange. As a result, trades must be placed with separate brokers for different transaction sides, increasing complexity, potential for error, and costs.
Trading on Stock Connect is also subject to limitations such as daily quota limitations on purchases, limitations on transferability of shares, pre-delivery or pre-validation of cash or securities to or by a broker which may impact a fund’s ability to trade portfolio securities in a timely manner and can negatively affect a fund’s returns. Only certain A-shares are eligible to be accessed through Stock Connect and these securities could lose their eligibility at any time. Stock Connect utilizes an omnibus clearing structure, and a fund’s shares will be registered in the custodian’s name on the Hong Kong Central Clearing and Settlement System. This may reduce a manager’s ability to effectively manage a fund’s holdings, including the potential enforcement of equity owner rights. B shares can only be traded by non-residents of the PRC or residents with an appropriate foreign currency account that meets certain requirements.
China’s foreign ownership limitations may result in limitations on investment or the return of profits if a fund purchases and sells shares of an issuer in which it owns 5% or more of the shares issued within a six-month period. It is unclear whether China will aggregate a fund’s holdings with other affiliated funds in determining the 5% ownership level. The restrictions on ownership and ability of Chinese regulatory authorities and Chinese issuers to suspend trading, their willingness to exercise this option in response to market volatility and other events, can negatively affect liquidity and volatility of the Chinese markets.
It is also possible to gain exposure to certain Chinese companies through legal structures known as Variable Interest Entities (VIEs). The VIE structure is designed to provide foreign investors with exposure to Chinese companies that operate in certain sectors in which China restricts and/or prohibits foreign investments, such as internet, media, education, and telecommunications. VIEs seek to establish claims to a China-based company’s profits and control of its assets through contractual arrangements. While VIEs are a longstanding industry practice, they are not formally recognized under Chinese law or approved by Chinese regulators. It is also uncertain whether Chinese officials or regulators will prohibit Chinese companies from accessing foreign investment through VIEs or remove VIEs’ ability to pass through economic and governance rights to foreign individuals and entities. The contractual arrangements with the
VIE also may not be as effective in providing operational control as direct equity ownership. The Chinese equity owner(s) of a VIE could decide to breach the contractual arrangements and may have conflicting interests and fiduciary duties as compared to foreign investors in the shell company. Further, any breach or dispute under these contracts will likely fall under Chinese jurisdiction and law. Prohibitions of these structures by the Chinese government, or the inability to enforce such contracts through Chinese courts and/or arbitration bodies, would likely cause the VIE-structured holding(s) to suffer significant, detrimental, and possibly permanent loss, and in turn, adversely affect a fund’s returns and net asset value. Additionally, an investor’s rights may be limited with respect to the underlying Chinese operating company.
Accessing and Investing in the Chinese Bond Market. The People’s Bank of China has established a program that permits eligible foreign investors to invest directly in bonds traded on the Chinese Interbank Bond Market (CIBM). While the CIBM is relatively large and trading volumes are generally high, the market has similar risks as bond markets in other emerging market countries. A fund may invest in the bonds available on the CIBM through Bond Connect, which was established with the Hong Kong Monetary Authority as a way to permit overseas investors to trade in each other’s respective markets. Bond Connect provides a connection between mainland China- and Hong Kong-based financial institutions, permitting securities trading between the mainland China and Hong Kong markets electronically, thus eliminating the stricter restrictions that were present under previous access models.
Investing in securities traded on the CIBM through Bond Connect is subject to regulatory risks. The relevant rules, regulations, structure, terms, and a fund’s ability to access Bond Connect may be subject to change with minimal notice and any changes have the potential to be applied retroactively. For example, if Bond Connect is not operating or trading is otherwise suspended, a fund’s ability to trade bonds in a timely manner may be affected and there may be negative impacts on the fund. Additionally, market volatility and possible lack of liquidity due to low trading volume on the CIBM may result in significant fluctuations in the prices of certain bonds traded on the CIBM. The bid-ask spreads of the prices of such securities may be large, and a fund may therefore incur significant costs and may suffer losses when selling such investments. Further, the bonds traded on the CIBM may be difficult or impossible to sell, which may impact a fund’s ability to acquire or dispose of such securities at their expected prices.
Bonds issued by Chinese companies or the Chinese government may be dollar denominated. These dollar-denominated bonds carry some of the same risks as RMB-denominated bonds traded through Bond Connect, but generally benefit from reduced currency risk since a fund does not need to engage in currency trading to settle the trade.
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 in 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 and currency exchange transactions generally 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 launch of a 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 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.
A 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.
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.
Hybrid Instruments. A hybrid instrument, or hybrid, is an interest in an issuer that combines the characteristics of an equity security, a debt security, a commodity, and/or a derivative. A hybrid may have characteristics that, on the whole, more strongly suggest the existence of a bond, stock, or other traditional investment, but a hybrid may also have prominent features that are normally associated with a different type of investment. Moreover, hybrid instruments may be treated as a particular type of investment for one regulatory purpose (such as taxation) and may be simultaneously treated as a different type of investment for a different regulatory purpose (such as securities or commodity regulation). Hybrids can be used as an efficient means of pursuing a variety of investment goals, including increased total return, duration management, and currency hedging. Because hybrids combine features of two or more traditional investments and may involve the use of innovative structures, hybrids present risks that may be similar to, different from, or greater than those associated with traditional investments with similar characteristics.
Examples of hybrid instruments include convertible securities, which combine the investment characteristics of bonds and common stocks; perpetual bonds, which are structured like fixed income securities, have no maturity date, and may be characterized as debt or equity for certain regulatory purposes; contingent convertible securities, which are fixed income securities that, under certain circumstances, either convert into common stock of the issuer or undergo a principal write-down by a predetermined percentage if the issuer’s capital ratio falls below a predetermined trigger level; and trust-preferred securities, which are preferred stocks of a special-purpose trust that holds subordinated debt of the corporate parent. Another example of a hybrid is a commodity-linked bond, such as a bond issued by an oil company that pays a small base level of interest with additional interest that accrues in correlation to the extent to which oil prices exceed a certain predetermined level. Such a hybrid would be a combination of a bond and a call option on oil.
In the case of hybrids that are structured like fixed income securities (such as structured notes), the principal amount or the interest rate is generally tied (positively or negatively) to the price of some commodity, currency, securities index, interest rate, or other economic factor (each, a benchmark). For some hybrids, the principal amount payable at maturity or the interest rate may be increased or decreased, depending on changes in the value of the benchmark. Other hybrids do not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark, thus magnifying movements within the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond with a fixed principal amount that pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes a fund to the credit risk of the issuer of the hybrids. Depending on the level of a fund’s investment in hybrids, these risks may cause significant fluctuations in the fund’s net asset value. Hybrid instruments may also carry liquidity risk since the instruments are often “customized” to meet the needs of an issuer or, sometimes, the portfolio needs of a particular investor, and therefore the number of investors that are willing and able to buy such instruments in the secondary market may be smaller than that for more traditional securities.
Certain issuers of hybrid instruments known as structured products may be deemed to be investment companies as defined in the 1940 Act. As a result, a fund’s investments in these products may be subject to the limitations described under the heading “Other Investment Companies.”
Industry Concentration. The SEC staff takes the position that a fund concentrates its investments if it invests more than 25% of its assets in any particular industry. (For this purpose investments do not include certain items such as cash, U.S. government securities, securities of other investment companies, and certain tax-exempt securities.)
Initial Public Offerings (“IPOs”). A fund may invest a portion of its assets in securities of companies offering shares in IPOs. IPOs may have a magnified performance impact on a fund with a small asset base. A fund may hold IPO shares for a very short period of time, which may increase the turnover of a fund’s portfolio and may lead to increased expenses for a fund, such as commissions and transaction costs. By selling IPO shares, a fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. The limited number of shares available for trading in some IPOs may make it more difficult for the Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Holders of IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders.
A fund’s investment in IPO shares may include the securities of unseasoned companies (companies with less than three years of continuous operations), which presents risks considerably greater than common stocks of more established companies. These companies may have limited operating histories and their prospects for profitability may be uncertain. These companies may be involved in new and evolving businesses and may be vulnerable to competition and changes in technology, markets and economic conditions. They may be more dependent on key managers and third parties and may have limited product lines.
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. This policy does not prevent Vanguard Commodity Strategy Fund from having an ownership interest in a wholly owned subsidiary.
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 Funds) 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 the 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.
Participatory Notes. Participatory notes (P-Notes) are a type of derivative that generally are traded over-the-counter and constitute general unsecured contractual obligations of the banks or broker-dealers that issue them. Generally, banks and broker-dealers associated with non-U.S. based brokerage firms buy securities listed on certain foreign exchanges and then issue P-Notes, which are designed to replicate the performance of the securities and markets. The performance results of P-Notes will not replicate exactly the performance of the securities or markets that the notes seek to replicate due to transaction costs and other expenses. The return on a P-Note that is linked to a particular underlying security generally is increased to the extent of any dividends paid in connection with the underlying security. However, the holder of a P-Note typically does not receive voting or other rights as it would if it directly owned the underlying security, and P-Notes present similar risks to investing directly in the underlying security. Additionally, P-Notes entail the risk that the counterparty or issuer of the P-Note may not be able to fulfill its obligations, that the holder and counterparty or issuer may disagree as to the meaning or application of contractual terms, or that the instrument may not perform as expected. Additionally, while P-Notes may be listed on an exchange, there is no guarantee that a liquid market will exist or that the counterparty or issuer of a P-Note will be willing to repurchase such instrument when the Fund wishes to sell it.
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.
Real Estate Investment Trusts (REITs). An equity REIT owns real estate properties directly and generates income from rental and lease payments. Equity REITs also have the potential to generate capital gains as properties are sold at a profit. A mortgage REIT makes construction, development, and long-term mortgage loans to commercial real estate developers and earns interest income on these loans. A hybrid REIT holds both properties and mortgages. To avoid taxation at the corporate level, REITs must distribute most of their earnings to shareholders.
Investments in REITs are subject to many of the same risks as direct investments in real estate. In general, real estate values can be affected by a variety of factors, including, but not limited to, supply and demand for properties, general or local economic conditions, and the strength of specific industries that rent properties. Ultimately, a REIT’s performance depends on the types and locations of the properties it owns and on how well the REIT manages its properties. For example, rental income could decline because of extended vacancies, increased competition from nearby properties, tenants’ failure to pay rent, regulatory limitations on rents, fluctuations in rental income, variations in market rental rates, or incompetent management. Property values could decrease because of overbuilding in the area, environmental liabilities, uninsured damages caused by natural disasters, a general decline in the neighborhood, losses because of casualty or condemnation, increases in property taxes, or changes in zoning laws.
The value of a REIT may also be affected by changes in interest rates. Rising interest rates generally increase the cost of financing for real estate projects, which could cause the value of an equity REIT to decline. During periods of declining interest rates, mortgagors may elect to prepay mortgages held by mortgage REITs, which could lower or diminish the yield on the REIT. REITs are also subject to heavy cash-flow dependency, default by borrowers, and changes in tax and regulatory requirements. In addition, a REIT may fail to meet the requirements for qualification and taxation as a REIT under the IRC and/or fail to maintain exemption from the 1940 Act.
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 Funds 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.
Short Sales. In a short sale of securities, a fund sells a security that it does not own, making delivery with securities “borrowed” from a broker. The fund is then obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the fund. Until the security is replaced, the fund is required to pay the lender any dividends or interest that accrue during the period of the loan. In order to borrow the security, the fund pays a fee and may also have to pay a premium which would increase the cost of the security sold. Generally speaking, the proceeds of the short sale will be retained by the broker to the extent necessary to meet margin requirements, until the short position is closed out. A fund will also incur transaction costs in effecting short sales. A fund will incur a loss as a result of a short sale if the price of the security increases between the date of the short sale and the date on which the fund replaces the borrowed security. A fund will realize a gain if the security declines in price between those two dates. The amount of any gain will be decreased and the amount of any loss will be increased by the amount of the fees, dividends, or interest the fund may be required to pay in connection with the short sale. Thus, a fund may incur a loss even if the security declines in price if such expenses are greater than the realized gain. A short sale theoretically creates the risk of an unlimited loss, as the price of the underlying securities could increase without limit, thus increasing the cost of buying those securities to cover the short position. There can be no assurance that the security needed to cover a short position will be available for purchase. Purchasing securities to close out the short position can itself cause the price of the securities to rise further (i.e., by increasing the demand for such security), thereby exacerbating the loss.
A fund may also engage in short sales if, at the time of the short sale, the fund owns or has the right to obtain without additional cost an equal amount of the security being sold short. This investment technique is known as a short sale “against the box.” For example, a fund may make a short sale against the box as a hedge because the advisor believes that the price of a security may decline, causing a decline in the value of a security owned by the fund (or a security convertible or exchangeable for such security), or when the fund wants to sell the security at an attractive current price.
In such a case, any future losses in the fund’s long position should be offset by a gain in the short position and, conversely, any gain in the long position should be reduced by a loss in the short position. The extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative to the amount the fund owns. If a fund sells securities short “against the box,” it may protect unrealized gains, but it will lose the opportunity to profit on such securities if the price rises. The successful use of short selling as a hedging strategy may be adversely affected by imperfect correlation between movements in the price of the security sold short and the security being hedged.
Subsidiary Investments. Vanguard Commodity Strategy Fund may invest in a wholly owned subsidiary organized under the laws of the Cayman Islands (the “subsidiary). The Fund is the sole beneficial owner of the subsidiary, and the Fund’s investment in the subsidiary will generally not exceed 25% of the Fund’s total assets.
The Fund intends to invest in the subsidiary primarily to obtain exposure to the commodity markets in compliance with the IRC. The subsidiary seeks to achieve its investment objective by investing in commodity-linked investments, including commodity futures and swaps. The subsidiary may also invest in fixed income securities, including cash instruments or other short-term investments, such as U.S. Treasury and U.S. government agency securities, certificates of deposit, money market instruments, and short-term fixed and floating-rate bonds for the purpose of providing margin or collateral for its commodity-linked derivative investments, providing liquidity in the portfolio, and earning interest. By investing in the subsidiary, the Fund is indirectly exposed to all of the risks to which the subsidiary is exposed.
The subsidiary is not a registered investment company and, accordingly, is not subject to the 1940 Act. Therefore, the Fund’s investment in the subsidiary has none of the protections provided to investors in funds registered under the federal securities laws of the United States. In addition, if the laws of the United States or the Cayman Islands change, there is no guarantee that the subsidiary can continue to operate or that the Fund would be permitted to invest in the subsidiary. See ”Tax Matters-Federal Tax Treatment of Commodity-Linked Investments and Subsidiary Investments“ for information about special tax considerations and risks applicable to the Fund’s investment in the subsidiary.
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. Each 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 Commodity-Linked Investments and Subsidiary Investments. Vanguard Commodity Strategy Fund may invest a portion of its assets in investments that create exposure to the commodity markets. The Fund may invest directly in commodity-linked investments that provide this exposure or indirectly in such investments through a wholly owned subsidiary that is organized under the laws of the Cayman Islands. The Fund’s ability to make direct and indirect investments in certain commodity-related investments, including the subsidiary, is limited by the Fund’s intention to qualify as a regulated investment company under the IRC. The subsidiary will be operated in a manner that is intended to enable the Fund to comply with these IRC requirements applicable to regulated investment companies.
In particular, in order for a fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income—i.e., dividends, interest, income derived from securities loans, gains from the sale of securities or foreign currencies, or other income derived with respect to the fund’s business of investing in securities or currencies. Income and gains from certain commodity-linked investments do not constitute qualifying income to a regulated investment company for purposes of this qualifying income test, and the tax treatment of other commodity-linked investments is uncertain, in particular with respect to whether the income or gains from such investments constitute qualifying income. The Fund generally intends to gain direct or indirect exposure to the commodity markets through investments that generate qualifying income by investing directly in commodity-linked investments that the Fund believes give rise to qualifying income or by investing indirectly in commodity-linked investments through the subsidiary. If the Fund, however, were to treat income or gain from a particular investment as qualifying income and the income or gain were later determined not to constitute qualifying income and, when aggregated with any other nonqualifying income, caused the Fund’s nonqualifying income to exceed 10% of its gross income in any taxable year, the Fund would fail to qualify as a regulated investment company unless it was eligible to, and did, pay a tax at the fund-level.
Under current law, the IRC generally treats a fund’s income derived from its investment in a wholly owned subsidiary as qualifying income, provided that the subsidiary annually distributes its earnings and profits to the fund. There is no assurance that the applicable provisions of the IRC will remain in effect; these provisions (and interpretations thereof) are subject to change, potentially with retroactive effect. The Fund could be required to restructure or liquidate its investment in its subsidiary accordingly. In the case of such liquidation, there is no guarantee that the Fund would be able to reinvest such investments in securities with comparable returns.
In addition, in order to qualify as regulated investment companies, the Fund generally cannot invest more than 25% of its assets in a subsidiary.
The subsidiary will be classified as a “controlled foreign corporation” for U.S. tax purposes and, because it is not expected to be deemed to carry on a U.S. trade or business, generally should not be subject to U.S. tax, although no assurance is given in that regard. However, the Fund will be required to include in its income annually amounts earned by the subsidiary during that year. Gains from the sales of investments by the subsidiary will not be eligible for capital gain treatment, but instead will be treated as ordinary income when included in the Fund’s income. Net losses incurred by the subsidiary during a tax year do not flow through to the Fund and thus will not be available to offset income or capital gain generated from the Fund’s other investments. In addition, net losses incurred by the subsidiary during a tax year generally cannot be carried forward by the subsidiary to offset gains realized by it in subsequent taxable years.
The subsidiary is not expected to owe income tax in its jurisdiction of organization, the Cayman Islands. Changes in the tax laws, or interpretations of existing laws, of the United States or the Cayman Islands could adversely affect the subsidiary and the Fund’s investment in its subsidiary.
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 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 Emerging Markets Select Stock Fund and Vanguard International Value 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 Funds 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 Funds, 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, each 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 for Vanguard Diversified Equity Fund, Vanguard International Value Fund, Vanguard Emerging Markets Select Stock Fund, and Vanguard Commodity Strategy Fund is computed by dividing the total assets, minus liabilities, of the Fund by the number of Fund shares outstanding. The NAV per share for Vanguard Global Environmental Opportunities Stock Fund 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 Funds do not sell or redeem shares. However, on those days the value of a 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 underlying Vanguard funds in which the Diversified Equity Fund invests also do not calculate their NAV on days when the NYSE is closed, but the value of their assets may also be affected to the extent that they hold 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 each 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 each 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 a Fund. Shares of a 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 each Fund is the NAV per share next determined after the redemption request is received in good order, as defined in the Fund’s prospectus.
Each Fund can postpone payment of redemption proceeds for up to seven calendar days. In addition, each 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’s 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 a Fund at the beginning of such period.
If a Fund determines that it would be detrimental to the best interests of the remaining shareholders of a 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 Funds do not charge redemption fees. 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
Each 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 FUNDS
Vanguard
Each 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 was established and operates under the Agreement. 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 their 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.
Pursuant to an agreement between Vanguard and JP Morgan Chase Bank N.A. (JP Morgan), JP Morgan provides services for Vanguard International Value Fund and Vanguard Diversified Equity Fund. These services include, but are not limited to: (i) the calculation of such funds’ daily NAVs and (ii) the furnishing of financial reports. The fees paid to JP Morgan 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, JP Morgan had received fees for services rendered as shown in the table below.
Pursuant to an agreement between Vanguard and State Street Bank and Trust Company (State Street), State Street provides services for Vanguard Emerging Markets Select Stock Fund, Vanguard Global Environmental Opportunities Stock Fund, and Vanguard Commodity Strategy Fund. These services include, but are not limited to: (i) the calculation of such funds’ 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 Funds for administrative services rendered as shown in the table below.
|
Vanguard Fund
|
2023
|
2024
|
2025
|
|
Vanguard Commodity Strategy Fund
|
$21,500.04
|
$21,437.53
|
$20,749.92
|
|
Vanguard Diversified Equity Fund
|
16,999.92
|
16,499.94
|
17,499.96
|
|
Vanguard Emerging Markets Select Stock Fund
|
21,500.04
|
21,437.53
|
20,749.92
|
|
Vanguard Global Environmental Opportunities Stock Fund
|
21,500.04
|
21,520.86
|
21,749.88
|
|
Vanguard International Value Fund
|
16,999.92
|
16,499.94
|
17,499.96
|
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 International Value Fund, Vanguard Emerging Markets Select Stock Fund, Vanguard Commodity Strategy Fund, and Vanguard Global Environmental Opportunities Stock Fund Only. Vanguard provides corporate management, administrative, and distribution services. 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. 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, each 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 Commodity Strategy Fund
|
$ 50,000
|
Less than 0.01%
|
0.02%
|
|
Vanguard Emerging Markets Select Stock Fund
|
24,000
|
Less than 0.01%
|
0.01
|
|
Vanguard Global Environmental Opportunities Stock Fund
|
2,000
|
Less than 0.01%
|
Less than 0.01%
|
|
Vanguard International Value Fund
|
286,000
|
Less than 0.01%
|
0.11
|
Under a separate agreement, Vanguard provides corporate management, administrative, and investment advisory services to a wholly owned subsidiary of Vanguard Commodity Strategy Fund for an annual fee of 0.10% of average net assets of the subsidiary. In addition, the subsidiary pays an unaffiliated third party, VGMF I (Cayman) Limited, an affiliate of Maples FS Limited, a fee plus reasonable additional expenses for trustee services. For the fiscal year ended October 31, 2025, the subsidiary paid Vanguard $419,065.
Vanguard Diversified Equity Fund Only. The Agreement provides that the Fund will not contribute to Vanguard’s capitalization or pay for corporate management, administrative, and distribution services provided by Vanguard. However, the Fund will bear its own direct expenses, such as legal, auditing, and custodial fees. In addition, the Agreement further provides that the Fund’s expenses may be offset, in whole or in part, by (1) the Fund’s contributions to the cost of operating the underlying funds in which the Fund invests and (2) certain savings in administrative and marketing costs that Vanguard expects to derive from the Fund’s operations. Accordingly, all expenses for services provided by Vanguard to the Fund and all other expenses incurred by the Fund are expected to be borne by the underlying funds. The Fund’s shareholders bear the fees and expenses associated with the Fund’s investments in the underlying funds.
As of October 31, 2025, the Acquired Fund Fees and Expenses of the Fund were 0.35%.
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 Funds (except Vanguard Diversified Equity Fund). Amounts captioned “Management and Administrative Expenses” include a 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 a 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 Funds 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 each Fund’s average month-end net assets.
|
|
Annual Shared Fund Operating Expenses
|
|
|
|
|
(Shared Expenses Deducted From Fund Assets)
|
|
|
|
Vanguard Fund
|
2023
|
2024
|
2025
|
|
Vanguard Commodity Strategy Fund
|
|
|
|
|
Management and Administrative Expenses
|
0.18%
|
0.18%
|
0.13%
|
|
Marketing and Distribution Expenses
|
0.01
|
0.01
|
0.01
|
|
Vanguard Emerging Markets Select Stock Fund
|
|
|
|
Management and Administrative Expenses
|
0.26%
|
0.26%
|
0.26%
|
|
Marketing and Distribution Expenses
|
0.01
|
0.01
|
Less than 0.01
|
|
Vanguard Global Environmental Opportunities Stock Fund
|
|
|
|
Management and Administrative Expenses
|
0.03%
|
0.15%
|
0.16%
|
|
Marketing and Distribution Expenses
|
Less than 0.01
|
Less than 0.01
|
Less than 0.01
|
|
Vanguard International Value Fund
|
|
|
|
|
Management and Administrative Expenses
|
0.19%
|
0.19%
|
0.18%
|
|
Marketing and Distribution Expenses
|
0.01
|
0.01
|
Less than 0.01
|
Vanguard International Value 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’s 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
|
|
|
Position(s)
|
Vanguard
|
During the Past Five Years,
|
Vanguard Funds
|
|
|
Held With
|
Funds’ Trustee/
|
Outside Directorships,
|
Overseen by
|
|
Name, Year of Birth
|
Funds
|
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.
|
|
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
Position(s)
|
Vanguard
|
During the Past Five Years,
|
Vanguard Funds
|
|
|
Held With
|
Funds’ Trustee/
|
Outside Directorships,
|
Overseen by
|
|
Name, Year of Birth
|
Funds
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
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.
|
|
|
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).
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
Position(s)
|
Vanguard
|
During the Past Five Years,
|
Vanguard Funds
|
|
|
Held With
|
Funds’ Trustee/
|
Outside Directorships,
|
Overseen by
|
|
Name, Year of Birth
|
Funds
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
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.
|
|
|
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).
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
Position(s)
|
Vanguard
|
During the Past Five Years,
|
Vanguard Funds
|
|
|
Held With
|
Funds’ Trustee/
|
Outside Directorships,
|
Overseen by
|
|
Name, Year of Birth
|
Funds
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
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.
|
|
|
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 meetings 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. The trustees and officers of Vanguard Diversified Equity Fund will receive no remuneration directly from the funds. However, the Fund’s underlying funds pay their proportionate share of the trustees’ compensation and the officers’ salaries and benefits.
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 Vanguard International Value Fund, Vanguard Emerging Markets Select Stock Fund, Vanguard Global Environmental Opportunities Stock Fund, and Vanguard Commodity Strategy Fund for each trustee. In addition, the table shows the total amount of compensation paid to each trustee by all Vanguard funds.
VANGUARD INTERNATIONAL VALUE FUND, VANGUARD EMERGING MARKETS SELECT STOCK FUND, VANGUARD GLOBAL ENVIRONMENTAL OPPORTUNITES STOCK FUND, AND VANGUARD COMMODITY STRATEGY 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
|
$706
|
$415,000
|
|
Emerson U. Fullwood6
|
301
|
88,333
|
|
F. Joseph Loughrey7
|
335
|
98,333
|
|
Mark Loughridge
|
893
|
525,000
|
|
Scott C. Malpass
|
664
|
390,000
|
|
John Murphy8
|
485
|
380,000
|
|
Lubos Pastor
|
664
|
390,000
|
|
Rebecca Patterson9
|
488
|
350,833
|
|
André F. Perold
|
647
|
387,500
|
|
Sarah Bloom Raskin
|
706
|
415,000
|
|
Grant Reid
|
664
|
390,000
|
|
David Thomas
|
647
|
380,000
|
|
Barbara Venneman10
|
488
|
350,833
|
|
Peter F. Volanakis
|
706
|
415,000
|
|
|
|
|
1 The amounts shown in this column are based on the Trust’s fiscal year ended October 31, 2025. Each Fund within the Trust is responsible for a proportionate share of these amounts.
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 each Fund and of all Vanguard funds served by the trustee as of December 31, 2025.
VANGUARD TRUSTEES EQUITY FUND
|
|
|
Dollar Range of
|
Aggregate Dollar Range
|
|
|
|
Fund Shares
|
of Vanguard Fund Shares
|
|
Vanguard Fund
|
Trustee
|
Owned by Trustee
|
Owned by Trustee
|
|
Vanguard Commodity Strategy 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
|
|
Vanguard Diversified Equity 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
|
|
Vanguard Emerging Markets Select Stock 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
|
|
|
|
Dollar Range of
|
Aggregate Dollar Range
|
|
|
|
Fund Shares
|
of Vanguard Fund Shares
|
|
Vanguard Fund
|
Trustee
|
Owned by Trustee
|
Owned by Trustee
|
|
Vanguard Global Environmental Opportunities Stock 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
|
|
Vanguard International Value 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
|
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 Commodity Strategy Fund
|
Admiral Shares
|
SEI Private Trust Company, FBO M&T
|
5.57%
|
|
|
|
Bank, Oaks, PA
|
|
|
|
|
National Financial Services LLC, Jersey
|
30.22%
|
|
|
|
City, NJ
|
|
|
Vanguard Diversified Equity Fund
|
Investor Shares
|
Fidelity Investments Institutional
|
11.39%
|
|
|
|
Operations Company Inc., Covington,
|
|
|
|
|
KY
|
|
|
Vanguard Emerging Markets Select Stock Fund
|
Investor Shares
|
National Financial Services LLC, Jersey
|
6.15%
|
|
|
|
City, NJ
|
|
|
|
|
|
Percentage
|
|
Vanguard Fund
|
Share Class
|
Owner and Address
|
of Ownership
|
|
Vanguard Global Environmental Opportunities Stock
|
Investor Shares
|
Ascensus Trust Company, Omnibus
|
6.37%
|
|
Fund
|
|
Reinvest, Fargo, ND
|
|
|
|
Admiral Shares
|
The Skoll Foundation, Palo Alto, CA
|
9.81%
|
|
|
|
The Skoll Fund, Palo Alto, CA
|
14.51%
|
|
|
|
Goldman Sachs and Co. LLC, Salt Lake
|
15.25%
|
|
|
|
City, UT
|
|
|
Vanguard International Value Fund
|
Investor Shares
|
Charles Schwab & Co., Inc., San
|
11.95%
|
|
|
|
Francisco, CA
|
|
|
|
|
Vanguard STAR Fund, Valley Forge, PA
|
13.37%
|
A shareholder who owns more than 25% of a Fund’s voting shares may be considered a controlling person. As of January 31, 2026, the following held of record 25% or more of the voting shares:
|
|
|
Percentage
|
|
Vanguard Fund
|
Owner
|
of Ownership
|
|
Vanguard Commodity Strategy Fund
|
National Financial Services LLC, Jersey City, NJ
|
30.22%
|
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 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.
1Any disclosure of portfolio holdings will be subject to, and consistent with, the Information Barrier Policy.
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. Vanguard Commodity Strategy Fund generally will seek to disclose its complete portfolio holdings and other investment positions as of the end of the most recent calendar quarter online at vanguard.com, 30 calendar days after the end of the calendar quarter. 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. Vanguard Diversified Equity Fund 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.
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, 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:
■Altrinsic Global Advisors, LLC (Altrinsic) provides investment advisory services for a portion of Vanguard International Value Fund.
■ARGA Investment Management, LP (ARGA) provides investment advisory services for a portion of Vanguard International Value Fund.
■Baillie Gifford Overseas Ltd. (Baillie Gifford) provides investment advisory services for a portion of Vanguard Emerging Markets Select Stock Fund.
■Ninety One North America, Inc. (Ninety One) provides investment advisory services for Vanguard Global Environmental Opportunities Stock Fund.
■Pzena Investment Management, LLC (Pzena) provides investment advisory services for a portion of Vanguard Emerging Markets Select Stock Fund.
■Sprucegrove Investment Management Ltd. (Sprucegrove) provides investment advisory services for a portion of Vanguard International Value Fund.
■Wellington Management Company LLP (Wellington Management) provides investment advisory services for a portion of Vanguard Emerging Markets Select Stock Fund.
■Vanguard provides investment advisory services to Vanguard Diversified Equity Fund through its wholly owned subsidiary, VCM and to Vanguard Commodity Strategy Fund through its wholly owned subsidiaries, VCM and 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 investment program for its portion of the fund’s assets. Hereafter, each portion will be 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.
I. Vanguard Commodity Strategy Fund
Vanguard provides investment advisory services to Vanguard Commodity Strategy Fund through its wholly owned subsidiaries, VCM and VPM. These services are provided by experienced investment management professionals who are employed by Vanguard and are associated persons of either VCM or VPM. The compensation and other expenses of these investment management professionals are allocated among the funds using these services.
During the fiscal years ended October 31, 2023, 2024, and 2025, the Fund incurred investment advisory expenses of approximately $152,000, $201,000, and $296,000, respectively.
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
|
|
|
|
|
|
|
No. of accounts
|
in accounts with
|
|
Portfolio
|
|
No. of
|
Total
|
with performance-based
|
performance-based
|
|
Manager
|
|
accounts
|
assets
|
fees
|
fees
|
|
Joshua C. Barrickman
|
Registered investment companies1
|
29
|
$
|
1.5T
|
0
|
$0
|
|
|
Other pooled investment vehicles
|
0
|
$
|
0
|
0
|
$0
|
|
|
Other accounts
|
7
|
$8.5B
|
0
|
$0
|
|
Fei Xu
|
Registered investment companies1
|
1
|
$2.1B
|
0
|
$0
|
|
|
Other pooled investment vehicles
|
0
|
$
|
0
|
0
|
$0
|
|
|
Other accounts
|
0
|
$
|
0
|
0
|
$0
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Commodity Strategy Fund, which held assets of $2.1 billion as of October 31, 2025.
2. Material Conflicts of Interest
VCM. At VCM, 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. VCM manages potential conflicts between funds or accounts through allocation policies and procedures, internal review processes, and oversight by trustees and independent third parties. VCM 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.
VPM. 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) Vanguard Commodity Strategy Fund. Each such portfolio manager is an associated person of VCM or 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 Fund, the performance factor depends on how successfully the 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 managers owned shares of the Funds they managed as follows:
|
Joshua C. Barrickman
|
|
|
|
|
|
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 Commodity Strategy Fund
|
|
|
|
|
|
|
|
|
|
|
|
x
|
|
|
|
|
|
|
Fei Xu
|
|
|
|
|
|
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 Commodity Strategy Fund
|
|
|
|
|
|
|
|
|
|
|
|
x
|
|
|
|
|
|
II. Vanguard Diversified Equity Fund
Vanguard provides investment advisory services to Vanguard Diversified Equity Fund through its wholly owned subsidiary, VCM. Vanguard Diversified Equity Fund is a fund of funds that invests in other Vanguard mutual funds (underlying funds). Vanguard Diversified Equity Fund benefits from the investment advisory services provided to the underlying funds and, as a shareholder of those funds, indirectly bears a proportionate share of those funds’ advisory fees and expenses. For more information about the investment advisory services provided to the underlying funds, please refer to each underlying fund’s Statement of Additional Information.
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
|
|
|
|
|
|
|
No. of accounts
|
in accounts with
|
|
Portfolio
|
|
No. of
|
|
Total
|
with performance-based
|
performance-based
|
|
Manager
|
|
accounts
|
|
assets
|
fees
|
fees
|
|
Walter Nejman
|
Registered investment companies1
|
27
|
$
|
3.1T
|
0
|
$0
|
|
|
Other pooled investment vehicles
|
12
|
$959.1B
|
0
|
$0
|
|
|
Other accounts
|
0
|
$
|
0
|
0
|
$0
|
|
Michael R. Roach
|
Registered investment companies1
|
24
|
$977.9B
|
0
|
$0
|
|
|
Other pooled investment vehicles
|
12
|
$959.1B
|
0
|
$0
|
|
|
Other accounts
|
0
|
$
|
0
|
0
|
$0
|
|
Aurélie Denis
|
Registered investment companies1
|
27
|
$
|
2.8T
|
0
|
$0
|
|
|
Other pooled investment vehicles
|
12
|
$959.1B
|
0
|
$0
|
|
|
Other accounts
|
0
|
$
|
0
|
0
|
$0
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Diversified Equity Fund, which held assets of $3 billion as of October 31, 2025.
2. Material Conflicts of Interest
At VCM, 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. VCM manages potential conflicts between funds or accounts through allocation policies and procedures, internal review processes, and oversight by trustees and independent third parties. VCM 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) Vanguard Diversified Equity Fund. Each such portfolio manager is an associated person of VCM. 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. This performance factor is not based on the amount of assets held in any individual fund’s portfolio. For Vanguard Diversified Equity Fund, 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 include the performance of the funds managed by the portfolio manager, the portfolio manager’s contributions to the investment management
B-56
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 managers owned shares of the Funds they managed as follows:
Aurélie Denis
Vanguard Diversified Equity Fund
Walter Nejman
Vanguard Diversified Equity Fund
Michael R. Roach
Vanguard Diversified Equity Fund
Dollar Range
|
|
|
|
|
$10,001
|
$50,001
|
|
$100,001
|
$500,001
|
|
|
None
|
$1 to $10k
|
to $50k
|
|
to $100k
|
to $500k
|
|
to $1m
|
Over $1m
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Range
|
|
|
|
|
|
|
|
|
|
$10,001
|
$50,001
|
|
$100,001
|
$500,001
|
|
|
None
|
$1 to $10k
|
to $50k
|
|
to $100k
|
to $500k
|
|
to $1m
|
Over $1m
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Range
|
|
|
|
|
|
|
|
|
|
$10,001
|
$50,001
|
|
$100,001
|
$500,001
|
|
|
None
|
$1 to $10k
|
to $50k
|
|
to $100k
|
to $500k
|
|
to $1m
|
Over $1m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
x
III. Vanguard International Value Fund
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 MSCI ACWI ex USA Index over the preceding 60-month period.
During the fiscal years ended October 31, 2023, 2024, and 2025, the Fund incurred aggregate investment advisory fees of approximately $21,838,000 (before a performance-based increase of $693,000), $22,090,000 (before a performance-based decrease of $106,000), and $18,682,000 (before a performance-based decrease of $776,000), respectively.
A. Altrinsic Global Advisors, LLC (Altrinsic)
Altrinsic Global Advisors, LLC, founded in 2000, is a global equity boutique headquartered out of Stamford, CT, with a sole focus on managing global, international, and emerging market equity strategies.
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
|
|
John Hock
|
Registered investment companies1
|
3
|
$463B
|
1
|
$12M
|
|
|
Other pooled investment vehicles
|
6
|
$ 3.1B
|
0
|
$
|
0
|
|
|
Other accounts
|
14
|
$ 5.1B
|
0
|
$
|
0
|
|
Rich McCormick
|
Registered investment companies1
|
3
|
$463B
|
1
|
$12M
|
|
|
Other pooled investment vehicles
|
6
|
$ 3.1B
|
0
|
$
|
0
|
|
|
Other accounts
|
14
|
$ 5.1B
|
0
|
$
|
0
|
|
John DeVita
|
Registered investment companies1
|
3
|
$463B
|
1
|
$12M
|
|
|
Other pooled investment vehicles
|
6
|
$ 3.1B
|
0
|
$
|
0
|
|
|
Other accounts
|
14
|
$ 5.1B
|
0
|
$
|
0
|
|
|
|
|
|
|
|
|
1 Includes Vanguard International Value Fund which held assets of $11.6 billion as of October 31, 2025.
2. Material Conflicts of Interest
Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. Where conflicts of interest arise between a Fund and other accounts managed by the portfolio manager, Altrinsic will proceed in a manner that ensures that the Fund will not be treated less favorably. There may be instances where similar portfolio transactions may be executed for the same security for numerous accounts managed by the portfolio managers. In such instances, securities will be allocated in accordance with Altrinsic’s trade allocation policy.
3. Description of Compensation
Altrinsic receives a fee based on the assets under management of the Fund as set forth in the Investment Advisory Agreement between Altrinsic and the Trust on behalf of the Fund. Altrinsic pays its investment professionals out of its total revenue, including the advisory fees earned with respect to the Fund. The following information relates to the fiscal year ended December 31, 2025.
Each portfolio manager receives a base salary and may receive an annual bonus based on the profitability of the firm. The portfolio managers’ compensation arrangements are not determined on the basis of the performance of specific funds or accounts managed.
4. Ownership of Securities
As of October 31, 2025, Mr. Hock, Mr. McCormick, and Mr. DeVita did not own any shares of the Fund.
B. ARGA Investment Management, LP (ARGA)
ARGA, located in Stamford, Connecticut, is an investment management firm founded in 2010 by A. Rama Krishna.
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
|
|
A. Rama Krishna
|
Registered investment companies1
|
7
|
$
|
13B
|
1
|
$
|
12M
|
|
|
Other pooled investment vehicles
|
13
|
$
|
4.6B
|
4
|
$
|
2.6B
|
|
|
Other accounts
|
53
|
$13.9B
|
2
|
$401M
|
|
Steven Morrow
|
Registered investment companies1
|
2
|
$
|
11.7B
|
1
|
$
|
12M
|
|
|
Other pooled investment vehicles
|
6
|
$
|
805B
|
2
|
$166M
|
|
|
Other accounts
|
33
|
$
|
6B
|
1
|
$264M
|
|
|
|
|
|
|
|
|
|
1 Includes Vanguard International Value Fund which held assets of $11.6 billion as of October 31, 2025.
2. Material Conflicts of Interest
ARGA’s compliance procedures aim to identify and prevent potential conflicts of interest related to client, employee, and proprietary activities. Potential conflicts of interest include instances when ARGA desires to purchase or sell the same securities for the ARGA Portfolio and other accounts, which could result, if such conflict is not managed properly, in unfair treatment to one account or another. Another potential conflict could occur if employees had knowledge of future ARGA trades and, on the basis of such information, made their own personal trades, which could harm the ARGA Portfolio and other ARGA accounts.
Specific procedures addressing conflicts of interest are described in the following paragraphs.
Mr. Krishna and Mr. Morrow are Chief Investment Officer and Director of Research, respectively, of ARGA. In addition to the Fund, ARGA manages other accounts on a discretionary basis (and where, as of October 31, 2020, Mr. Krishna is one of a number of investors within certain commingled funds as well as certain proprietary partnerships) that use the valuation-based investment strategy utilized for the ARGA Portfolio. ARGA expects to manage additional such accounts in the future. To avoid any incentive to favor one account over another in the allocation of investment opportunities (particularly where there are differing performance fee arrangements), ARGA has implemented strict fairness policies with respect to trading practices and allocation procedures. ARGA examines trade allocations among client portfolios regularly and confirms their consistency with ARGA’s fiduciary obligation to allocate investment opportunities fairly. ARGA also regularly monitors dispersion of client account returns within the same investment strategy to verify that no preferential treatment has occurred. As expected, in instances such as clients directing trades through particular brokers, ARGA may place non-simultaneous trade orders for the ARGA Portfolio and another client, which may affect the execution price of the security to the detriment of one or the other.
To ensure ARGA employees do not use knowledge of the ARGA Portfolio’s trading for personal gain, firm Access Persons and their immediate family members living in the same household are subject to initial, quarterly, and annual brokerage account reporting and certification requirements with respect to brokerage or investment accounts over which they have a direct or indirect beneficial interest. Access Persons, including their immediate family members living in the same household, contemplating the purchase or sale of any security or an interest in a private placement vehicle must obtain preclearance from ARGA. Access Persons’ brokerage statements and emails are reviewed on a quarterly basis to ensure continued compliance with ARGA’s policies on personal securities transactions.
While ARGA follows these procedures to eliminate potential conflicts of interest, there is no guarantee they will detect and prevent every situation where potential conflicts could arise. Investment personnel of the firm or its affiliates may be permitted to be commercially or professionally involved with an issuer of securities. Any potential conflicts of interest from such involvement would be monitored for compliance with the firm’s Code of Ethics.
3. Description of Compensation
The goal of ARGA’s compensation structure is to align the interests of investment professionals with those of its clients and the firm. Accordingly, ARGA rewards behavior by investment professionals that results in long-term success for its clients and the company.
Mr. Krishna has equity ownership in ARGA; accordingly, he is entitled to a share of the firm’s profits, if and when earned. He does not receive a base salary or performance bonus. ARGA compensates Mr. Morrow through a combination of base salary, performance bonus, and profit sharing. Base salary is a fixed amount that may change based on an annual review or market conditions. Bonus is determined by both individual performance and financial success of the firm. Effective 2016, a portion of profits and value of the firm is shared with employees other than Mr. Krishna through the ARGA Commitment Plan. These employees comprise individuals across the firm who are key to delivering superior levels of excellence for ARGA’s clients. Over the long term, the firm expects bonus and profit sharing to make up the highest proportion of compensation. Where relevant at higher levels of individual compensation, a portion of both the bonus and profit sharing is likely to be deferred, thereby encouraging long-term retention of key employees.
ARGA formally reviews performance by each individual based on a framework that is relevant for the individual’s area of responsibility and overall adherence to the firm’s values. ARGA does not tie portfolio manager compensation specifically to the performance of the ARGA Portfolio relative to the Fund’s benchmark, as that could cause individuals to stray from ARGA’s long-term, valuation-based investment discipline. For investment professionals, ARGA reviews both quantitative and fundamental factors. Quantitative factors may include productivity in terms of companies’ research coverage and construction of global industry models. Fundamental factors focus on depth of company and industry research, quality of company models and embedded forecasts, contribution to discussions with company management, and ability to identify key business issues and paths to possible resolution. In addition to evaluating individuals on their own contribution, the firm assesses their commitment to the success of other ARGA employees and ARGA as a whole.
4. Ownership of Securities
As of October 31, 2025, Mr. Krishna did not own any shares of Vanguard International Value Fund. As of the same date, Mr. Morrow owned shares of the Fund in the $50,001- $100,000 range.
C. Sprucegrove Investment Management Ltd. (Sprucegrove)
Sprucegrove is a Canadian investment advisory firm founded in 1993. The firm is 100% employee-owned. Sprucegrove is one of the largest independently owned investment management firms in Canada and manages money primarily for institutional clients.
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
|
|
Arjun Kumar
|
Registered investment companies1
|
1
|
$11.6B
|
1
|
$11.6B
|
|
|
Other pooled investment vehicles
|
12
|
$ 4.9B
|
0
|
$
|
0
|
|
|
Other accounts
|
8
|
$ 3.8B
|
0
|
$
|
0
|
|
Shirley Woo
|
Registered investment companies1
|
1
|
$11.6B
|
1
|
$11.6B
|
|
|
Other pooled investment vehicles
|
12
|
$ 4.9B
|
0
|
$
|
0
|
|
|
Other accounts
|
8
|
$ 3.8B
|
0
|
$
|
0
|
|
|
|
|
|
|
|
|
1 Includes Vanguard International Value Fund which held assets of $11.6 billion as of October 31, 2025.
2. Material Conflicts of Interest
Conflict of interest may be defined as a situation in which a business or an associated employee is involved in determining actions or decision involving multiple interests, financial or otherwise, and where the potential arises (regardless of likelihood) of serving one interest over or against another. In relation to our business, this typically relates to situations in which the interest of the business or associated employee might adversely affect our fiduciary duty to make decisions for the benefit and best interest of a client.
In order to effectively manage conflicts of interest, Sprucegrove has established and maintains a Conflict of Interest Registry applicable to its operations. Included in the Registry is the Fairness of Investment Opportunities Policy.
To ensure fairness in the allocation of opportunities among its clients, Sprucegrove uses its best efforts to do the following:
Orders entered for a specific security are batched for all applicable accounts and are entered simultaneously for execution at the same price. Order fills are allocated daily on a pro-rata basis at the average fill price for that day. Partial order fills on a day may be allocated to a selection of those clients if such prorating would be uneconomic, given minimum board lot sizes and client transaction costs. Sprucegrove will attempt to ensure that such partial fills are allocated such that no client or class of clients is given preference.
In the case of a new securities issue, where the allotment received is insufficient to meet the full requirements of all accounts on whose behalf orders have been placed, allocation is made on a pro-rata basis. However, if such prorating would result in an inappropriately small position for a client, the allotment would be re-allocated to another account. Over a period of time, Sprucegrove will make its best efforts to ensure that these prorating and reallocation policies result in fair and equal treatment of all clients.
In addition, Sprucegrove maintains a robust set of Policies and Procedures intended to address conflicts of interest in its normal course of business. These include (but are not limited to): Conflicts of Interest, Cross Trading and Transfers, Ethical Wall/Ring Fence, Self Dealing/Personal Trading, Client Commission Arrangements, and Proxy Voting.
Sprucegrove also maintains a Code of Ethics for adherence by all employees, including the portfolio management team.
3. Description of Compensation
Sprucegrove is a performance-based culture with a goal to reward employees who have consistently contributed to its investment objectives of above-average investment performance over the long-term coupled with superior client servicing, in a collaborative team environment. Sprucegrove has instituted a competitive compensation model that includes a market-based salary, an annual incentive bonus based on merit and the opportunity for equity participation (determined by the Board which is based on merit and tenure). Sprucegrove is wholly owned by its employees. Ownership is purchased, not granted and all shareholders are employees of the firm. Sprucegrove believes that firm-wide ownership provides the appropriate incentive and commitment while also attracting and retaining its professionals. All Portfolio Managers are shareholders (as outlined in the Form ADV).
The salary component for employees is fixed. In terms of the annual incentive bonus, Sprucegrove’s compensation model does not explicitly tie compensation to Fund pre- or post-tax performance. While all members of our Investment Team (i.e. Portfolio Managers and Investment Analysts) collectively focus on our investment objective of above-average investment performance over the long-term (i.e. a full market cycle), members are compensated based on the quality of the work produced and decisions made.
All Sprucegrove salaried employees are entitled to participate in the same benefits program.
Sprucegrove derives all of its revenue directly from its investment management services. All employees are impacted by the profitability of the business, which is directly related to the performance of its products, thereby aligning Sprucegrove’s employees’ interests with its clients’ interests.
4. Ownership of Securities
As of October 31, 2025, Mr. Kumar and Ms. Woo did not own any shares of Vanguard International Value Fund.
IV. Vanguard Emerging Markets Select Stock Fund
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 FTSE Emerging Index thereafter over the preceding 36-month period.
During the fiscal years ended October 31, 2023, 2024, and 2025, the Fund incurred aggregate investment advisory fees of approximately $3,895,000 (before a performance-based decrease of $103,000), $3,934,000 (before a performance-based decrease of $519,000), and $4,196,000 (before a performance-based increase of $127,000), respectively.
A. Baillie Gifford Overseas Ltd. (Baillie Gifford)
Baillie Gifford is an investment advisory firm founded in 1983. Baillie Gifford is wholly owned by a Scottish investment company, Baillie Gifford & Co. Founded in 1908, Baillie Gifford & Co., which is one of the largest independently owned investment management firms in the United Kingdom, manages money primarily for institutional clients.
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
|
|
Andrew Stobart
|
Registered investment companies1
|
3
|
$7.2B
|
1
|
$1B
|
|
|
Other pooled investment vehicles
|
6
|
$ 2B
|
0
|
$
|
0
|
|
|
Other accounts
|
15
|
$8.7B
|
0
|
$
|
0
|
|
Mike Gush
|
Registered investment companies1
|
3
|
$8.2B
|
1
|
$1B
|
|
|
Other pooled investment vehicles
|
6
|
$1.7B
|
0
|
$
|
0
|
|
|
Other accounts
|
12
|
$6.4B
|
0
|
$
|
0
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Emerging Markets Select Stock Fund which held assets of $1 billion as of October 31, 2025.
2. Material Conflicts of Interest
At Baillie Gifford, individual portfolio managers may manage multiple accounts for multiple clients. In addition to mutual funds, these other accounts may include separate accounts, collective investment schemes, or offshore funds. Baillie Gifford manages potential conflicts between funds or with other types of accounts by implementing effective organizational and administrative arrangements to ensure that reasonable steps are taken to prevent the conflict giving rise to a material risk of damage to the interests of clients.
One area where a conflict of interest potentially arises is in the placing of orders for multiple clients and subsequent allocation of trades. Unless client-specific circumstances dictate otherwise, investment teams normally implement transactions in individual stocks for all clients with similar mandates at the same time. This aggregation of individual transactions can, of course, operate to the advantage or disadvantage of the clients involved in the order. When receiving orders from investment managers, traders at Baillie Gifford will generally treat order priority on a “first come, first served” basis, and any exceptions to this are permitted only in accordance with established policies. Baillie Gifford has also developed trade allocation systems 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 where two or more funds or accounts participate in investment decisions involving the same securities. Investment personnel of the firm or its affiliates may be permitted to be commercially or professionally involved with an issuer of securities. Any potential conflicts of interest from such involvement would be monitored for compliance with the firm’s Code of Ethics.
3. Description of Compensation
Mr. Gush is a partner of Baillie Gifford & Co. As such, he receives a base salary and a share of the partnership profits. The profit share is calculated as a percentage of total partnership profits based on seniority, role within Baillie Gifford & Co., and length of service. The basis for the profit share is detailed in the Baillie Gifford Partnership Agreement. The main staff benefits, such as pension schemes, are not available to partners, and therefore partners provide for benefits from their own personal funds.
Mr Stobart receives compensation with three key elements: (1) base salary, (2) an Annual Performance Award, and (3) a Long-Term Profit Award. All employees participate in the Annual Performance Award (APA) arrangement and are allocated to a level within the APA in line with the size, scope, and function of their role. There are five levels for the APA, each with a different level of maximum award, relevant to the area of the business that each employee is part of. In addition, all employees have the opportunity to participate in the Long-Term Profit Award (LTPA). This award provides an annual payment to employees determined by the firm’s profitability, enabling employees to share in, and
have a direct link to, the long-term prosperity of the firm.
Mr Stobart is required to defer 40% of his total annual variable remuneration (both APA and LTPA elements). Awards deferred are held for a period of three years and are invested in a range of funds managed by Baillie Gifford.
4. Ownership of Securities
As of October 31, 2025, Mr. Stobart and Mr. Gush did not own any shares of Vanguard Emerging Markets Select Stock Fund.
B. Pzena Investment Management, LLC (Pzena)
Pzena, a global investment management firm based in New York City, was founded in 1995. Pzena is wholly owned by the partners of Pzena Investment Management, LLC, a Delaware limited liability company.
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
|
|
Caroline Cai
|
Registered investment companies1
|
20
|
$
|
15B
|
1
|
$
|
2.9B
|
|
|
Other pooled investment vehicles
|
68
|
$
|
32B
|
4
|
$895M
|
|
|
Other accounts
|
57
|
$
|
16B
|
0
|
$
|
0
|
|
Allison Fisch
|
Registered investment companies1
|
19
|
$
|
13B
|
1
|
$
|
1B
|
|
|
Other pooled investment vehicles
|
38
|
$
|
6B
|
1
|
$462M
|
|
|
Other accounts
|
40
|
$
|
11B
|
0
|
$
|
0
|
|
Rakesh Bordia
|
Registered investment companies1
|
19
|
$
|
13B
|
1
|
$
|
1B
|
|
|
Other pooled investment vehicles
|
38
|
$
|
6B
|
1
|
$462M
|
|
|
Other accounts
|
41
|
$
|
11B
|
0
|
|
0
|
|
Akhil Subramanian
|
Registered investment companies1
|
7
|
$4.6B
|
1
|
$
|
1B
|
|
|
Other pooled investment vehicles
|
20
|
$
|
3B
|
1
|
$462M
|
|
|
Other accounts
|
18
|
$
|
7B
|
0
|
$
|
0
|
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Emerging Markets Select Stock Fund which held assets of $1 billion as of October 31, 2025.
2. Material Conflicts of Interest
In Pzena’s view, conflicts of interest may arise in managing the fund’s portfolio investments, on the one hand, and the portfolios of Pzena’s other clients and/or accounts (together “Accounts”), on the other. Set forth below is a brief description of some of the material conflicts that may arise and Pzena’s policy or procedure for handling such conflicts.
Although Pzena has designed such procedures to prevent and address conflicts, there is no guarantee that these procedures will detect every situation in which a conflict could arise.
The management of multiple Accounts inherently carries the risk that there may be competing interests for the portfolio management team’s time and attention. Pzena seeks to minimize this by using one investment approach (i.e., classic value investing), and by managing all Accounts on a strategy-specific basis. If the portfolio management team identifies a limited investment opportunity that may be suitable for more than one Account, the fund may not be able to take full advantage of that opportunity; however, Pzena has adopted procedures for allocating portfolio transactions across Accounts so that each Account is treated fairly. With respect to partial fills for an order, depending on the size of the execution, Pzena may choose to allocate the executed shares on a pro-rata basis, or on a random basis. As with all trade allocations each Account generally receives pro-rata allocations of any new issue or IPO security that is appropriate for its investment objective. Permissible reasons for excluding an Account from an otherwise acceptable IPO or new issue investment include the Account having FINRA restricted person status, lack of available cash to make the purchase, a client-imposed trading prohibition on IPOs or on the business of the issuer, and brokerage restrictions.
With respect to securities transactions for the Accounts, Pzena determines which broker to use to execute each order, consistent with its duty to seek best execution. Pzena will bunch or aggregate like orders when it believes doing so will be beneficial to the Accounts. However, with respect to certain Accounts, Pzena may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Pzena may place separate, non-simultaneous, transactions for the fund and another Account, which may temporarily impact the market price of the security or the execution of the transaction to the detriment of one or the other.
Conflicts of interest may arise when members of the portfolio management team transact personally in securities investments made or to be made for the fund or other Accounts. To address this, Pzena has adopted a written Code of Business Conduct and Ethics designed to prevent and detect personal trading activities that may interfere or conflict with client interests (including fund shareholders’ interests) or its current investment strategy. The Code of Business Conduct and Ethics generally requires that most transactions in securities by Pzena’s Access Persons and certain related persons, whether or not such securities are purchased or sold on behalf of the Accounts, be cleared prior to execution by appropriate approving parties and compliance personnel. Securities transactions for Access Persons’ personal accounts also are subject to ongoing reporting requirements and annual and quarterly certification requirements. In addition, no Access Person shall be permitted to effect a short-term trade (i.e., to purchase and subsequently sell within 60 calendar days, or to sell and subsequently purchase, within 60 calendar days) of non-exempt securities. Finally, orders for proprietary accounts (i.e., accounts of Pzena’s principals, affiliates or employees or their immediate family that are managed by Pzena) are subject to written trade allocation procedures designed to ensure fair treatment of client accounts.
Proxy voting for Accounts’ securities holdings may also pose certain conflicts. A potential material conflict of interest could exist in the following situations: (i) Pzena manages any pension or other assets affiliated with a publicly traded company, and also holds that company’s or an affiliated company’s securities in one or more client portfolios; (ii) Pzena has a client relationship with an individual who is a corporate director, or a candidate for a corporate directorship of a public company whose securities are in one or more client portfolios; or (iii) A Pzena officer, director or employee, or an immediate family member thereof is a corporate director, or a candidate for a corporate directorship of a public company whose securities are in one or more client portfolios. For purposes hereof, an immediate family member is generally defined as a spouse, child, parent, or sibling. Our proxy voting policies provide for various methods of dealing with these and any other conflict scenarios subsequently identified by the firm.
Pzena manages some Accounts under performance-based fee arrangements. Pzena recognizes that this type of incentive compensation creates the risk for potential conflicts of interest. This structure may create inherent pressure to allocate investments having a greater potential for higher returns to accounts of those clients paying a performance fee. To prevent conflicts of interest associated with managing accounts with different compensation structures, Pzena generally requires portfolio decisions to be made on a product-specific basis. Pzena also requires pre-allocation of all client orders based on specific fee-neutral criteria. Additionally, Pzena requires average pricing of all aggregated orders. Finally, Pzena has adopted a policy prohibiting portfolio managers (and all employees) from placing the investment interests of one client or a group of clients with the same investment objectives above the investment interests of any other client or group of clients with the same or similar investment objectives. These measures help Pzena mitigate some of the conflicts that its management of private investment companies would otherwise present. Investment personnel of the firm or its affiliates may be permitted to be commercially or professionally involved with an issuer of securities. Any potential conflicts of interest from such involvement would be monitored for compliance with the firm’s Code of Ethics.
3. Description of Compensation
Pzena’s compensation philosophy is to reward long-term superior performers with total compensation at or near the top quartile of the asset management industry. As with all investment professionals at Pzena, Mr. Bordia, Ms. Cai, Ms. Fisch and Mr. Subramanian are compensated through a combination of a fixed base salary, performance bonus, and equity ownership, if appropriate, due to superior personal performance. The time frame Pzena examines for bonus compensation is annual. Base pay is set to be in line with industry averages, and when setting the level of discretionary bonuses, a blend of quantitative and qualitative measures are considered; however, bonuses are not based on Fund performance or assets of the Fund. For investment professionals, Pzena examines such things as effort, efficiency, ability to focus on the correct issues, stock modeling ability, and ability to successfully interact with company management. However, Pzena always considers all of the contributions that an employee has made and is likely to make in the future. Pzena avoids a compensation model that is driven by individual security performance, as this can lead to short-term thinking which is contrary to the firm’s value investment philosophy. Ownership is provided to individuals who have contributed meaningfully to the long-term success of the organization, and is the primary tool used
by Pzena for attracting and retaining the best people. Employees invited into the partnership generally receive an initial share grant at no cost to them and are subsequently offered economically attractive opportunities to exchange cash compensation for additional shares. Equity ownership ties personnel to long-term performance as the value of their ownership stake depends on Pzena delivering superior long-term results to investors. Mr. Bordia, Ms. Cai, Ms. Fisch and Mr. Subramanian are equity owners of Pzena.
4. Ownership of Securities
As of October 31, 2025, Ms. Cai owned shares of Vanguard Emerging Markets Select Stock Fund in the $10,001 - $50,000 range. Ms. Fisch, Mr. Bordia, and Mr. Subramanian did not own any shares of the Fund.
C. 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
|
|
Mary Pryshlak
|
Registered investment companies1
|
16
|
$18B
|
2
|
$7B
|
|
|
Other pooled investment vehicles
|
49
|
$17B
|
6
|
$2B
|
|
|
Other accounts
|
84
|
$30B
|
11
|
$6B
|
|
|
|
|
|
|
|
1 Includes Vanguard Emerging Markets Select Stock Fund which held assets of $1 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. Ms. Pryshlak also manages accounts that 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 fee 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. 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 does not receive an incentive payment based on the revenues earned by Wellington Management from the Fund managed by the Portfolio Manager.
The Portfolio Manager may also be eligible for bonus payments based on her 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. Ms. Pryshlak is a Partner.
4. Ownership of Securities
As of October 31, 2025, Ms. Pryshlak did not own any shares of the Fund.
V. Vanguard Global Environmental Opportunities Stock Fund
The Fund pays its advisor 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 the advisor’s portion of the Fund relative to that of the MSCI All Country World Index over the preceding 60-month period.
During the fiscal years ended October 31, 2023, 2024, and 2025 the Fund incurred aggregate investment advisory fees of approximately $135,000, $248,000 (before a performance-based decrease of $18,000), and $282,000 (before a performance-based decrease of $44,000) respectively.
Ninety One North America, Inc.
Ninety One is an investment advisory firm organized in 1991. Ninety One is a wholly-owned subsidiary of Ninety One International Limited (“Ninety One International”), which is an indirect majority-owned subsidiary of Ninety One Plc, a company listed on the London Stock Exchange. Ninety One Plc is affiliated with Ninety One Limited (“Ninety One Ltd”), a company listed on the Johannesburg Stock Exchange. Ninety One Ltd is the majority owner of Ninety One Africa (Pty) Ltd, which is the parent of Ninety One SA (Pty) Ltd (“Ninety One Pty”). Ninety One UK Ltd. (“Ninety One UK”) is also an indirect majority-owned subsidiary of Ninety One Plc.
In rendering investment advisory services to the Fund, Ninety One relies on a dual hatting agreement with certain of its affiliates, pursuant to which certain employees of such affiliates are permitted to provide portfolio management services to Ninety One’s clients (including the Fund). Under the dual hatting agreements, such employees and such affiliates are considered “associated persons,” as that term is defined in the Investment Advisers Act of 1940, as amended, of Ninety One, and the employees are subject to the control and supervision of Ninety One, and to Ninety One’s compliance policies and procedures and code of ethics, in connection with any services they provide to Ninety One’s clients.
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
|
|
Deirdre Cooper
|
Registered investment companies1
|
1
|
$90.9M
|
1
|
$91M
|
|
|
Other pooled investment vehicles
|
4
|
$
|
1B
|
0
|
$
|
0
|
|
|
Other accounts
|
7
|
$
|
1B
|
0
|
$
|
0
|
|
Graeme Baker
|
Registered investment companies1
|
1
|
$90.9M
|
1
|
$91M
|
|
|
Other pooled investment vehicles
|
4
|
$
|
1B
|
0
|
$
|
0
|
|
|
Other accounts
|
7
|
$
|
1B
|
0
|
$
|
0
|
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Global Environmental Opportunities Stock Fund which held assets of $90.9 million as of October 31, 2025.
2. Material Conflicts of Interest
Ninety One performs investment management and investment advisory services for various clients, including the Fund, many of whom may have differing investment objectives, guidelines, and restrictions. As a result, Ninety One may give advice and take action in the performance of its duties for the Fund that may differ from the advice given, or the timing or nature of action taken, with respect to other clients.
It is also possible that in the course of business, investments for the Fund will overlap with investments for other clients of Ninety One and create a possible conflict of interest in connection with an investment opportunity that may be suitable for multiple accounts, but not available in sufficient quantities for the Fund to participate fully. Because Ninety One provides services to a number of different clients, potential conflicts of interest may also arise related to the amount of time an individual devotes to managing the Fund. Ninety One may also have an incentive to favor some accounts in the allocation of investment opportunities or otherwise treat preferentially those accounts that pay Ninety One a performance-related fee, or a higher fee level or greater fees overall.
To address such conflicts, Ninety One has established a variety of policies and procedures whose goals are to facilitate the fair allocation of investment opportunities. At all times, Ninety One seeks to treat all of its clients in a fair and equitable manner and will act in a manner that Ninety One believes to be in the best interests of clients. Ninety One seeks to ensure that potential or actual conflicts of interest are appropriately resolved, taking into consideration the overriding best interests of its clients.
Mr. Baker and Ms. Cooper manage multiple accounts for Ninety One, including the Fund. In addition, Mr. Baker and Ms. Cooper each serve as portfolio managers of certain private investment funds and client accounts that are managed by affiliates of Ninety One. As such, each of Mr. Baker and Ms. Cooper will not devote their full business time to the Fund, but will devote such time as they, in their sole discretion, deems necessary to carry out their roles effectively. Each of Mr. Baker and Ms. Cooper will make decisions for each account based on the investment objectives, policies, practices and other relevant investment considerations that they believes is applicable to such accounts.
B-67
Mr. Baker and Ms. Cooper may on occasion give advice or take action with respect to certain accounts that differs from the advice given or action taken with respect to the Fund (especially where the investment policies differ). Thus, it is possible that the transactions and portfolio strategies Mr. Baker and Ms. Cooper may use for various accounts may conflict and affect the prices and availability of the securities and other financial instruments in which the Fund invests. In circumstances where conflicts occur, Ninety One seeks to implement policies to minimize such conflicts and ensure that decisions are made that are fair and equitable to all the accounts involved, in light of the circumstances prevailing at the time and its applicable fiduciary duties.
Potential conflicts of interest may also arise in connection with the knowledge by an employee of either Ninety One and/or an affiliate of Ninety One about the timing of transactions, investment opportunities, broker selection, portfolio holdings and investments. Such employees who have access to the size and timing of transactions may have information concerning the market impact of transactions. Such employees may be in a position to use this information to their possible advantage or to the possible detriment of a client. Ninety One manages these potential conflicts involving employee personal trades by requiring that any personal trade be made in compliance with Ninety One’s code of ethics.
3. Description of Compensation
The structure for investment professionals typically includes fixed pay, pension contributions (where relevant), employee benefits and may also include annual discretionary variable compensation, which can include both cash and deferred elements.
Fixed pay, pension contributions, and employee benefits
Fixed remuneration (including salaries), is reviewed annually and designed to reflect the relative skills and experience of, and contribution made, by each employee.
Employee benefits include:
•Life and permanent health insurances and medical cover, which vary according to local market norms.
•Employer pension contributions (where relevant), are based on annual salary only and not on other fixed remuneration, bonuses or the value of other benefits. No discretionary pension benefits are paid.
Discretionary annual variable compensation
Ninety One operates an annual discretionary cash bonus scheme and an annual discretionary deferred bonus scheme. The primary determinant of the variable compensation pool available for distribution is Ninety One’s own annual profit. Given our business is oriented towards meeting the long-term objectives of our clients, there are no significant fluctuations in profit levels (and therefore bonus pools) year on year. The pool is divided between the business divisions based on considerations of both financial and non-financial performance.
Currently, all Ninety One employees are eligible to be considered for a cash bonus payment under the scheme. Any payments made under the scheme are at the discretion of Ninety One and based on a number of qualitative and quantitative factors including multi-year performance and non-financial metrics such as compliance and risk awareness.
Where Ninety One’s financial performance is subdued or negative, total variable remuneration would be contracted in line with weaker financial results, taking into account both current remuneration and potential reductions in payouts of amounts previously earned. Ninety One’s total variable remuneration should therefore not limit its ability to strengthen its capital base as it is paid out of profits. This structure has been a key contributor to the long-term success of Ninety One and encourages our employees to behave like owners. Ninety One believes in aligning the long-term interests of clients, shareholders, and employees.
Deferred bonus scheme
Participation in the deferred bonus scheme is determined on an annual basis at the discretion of Ninety One Remuneration Committee based on the roles of individual employees. The purpose of the deferred bonus scheme is to retain key employees and to provide better alignment of the interests with both clients and Ninety One.
The conditions for participation in the deferred bonus scheme are determined annually based on the remuneration requirements. This will take into consideration local market remuneration practices and compliance with relevant regulations.
The deferred bonus awards are made in the form of a combination of investments into:
•Investment funds managed by Ninety One, with specific allocations (normally 50%) for portfolio managers and analysts into the funds for which they are responsible; and
•Listed shares in Ninety One (normally allocations of at least 25%).
The deferral period is just over three years and awards are only paid out under specific listed conditions. The awards do not accrue to the employee until the end of the deferral period. For deferrals into investment funds, these awards remain both assets and liabilities on the balance sheet of Ninety One until that time.
Employees forfeit their allocations if they resign or their employment terminates prior to the vesting date unless discretion is otherwise exercised by Ninety One. Any sums deferred would be subject to forfeiture in the event of serious compliance or risk breach, or termination for gross misconduct prior to the end of the deferral period.
Ninety One Equity Participation Programme
In August 2013, key employees of Ninety One acquired a 15% stake in the business, ultimately through a trust structure in which each participant owns a portion of the underlying trust assets. This structure locks in key talent and aligns employees’ interests with the interests of the firm as a whole, our shareholders, and our clients. As of March 31, 2024, the stake has increased to approximately 31%.
4. Ownership of Securities
As of October 31, 2025, Ms. Cooper and Mr. Baker did not own any shares of Vanguard Global Environmental Opportunities Stock Fund.
Duration and Termination of Investment Advisory Agreements
The current investment advisory agreements with the unaffiliated advisors (other than with Altrinsic for Vanguard International Value Fund) 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 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 on thirty (30) days’ written notice to the advisor (no prior written notice to ARGA), (2) by a vote of a majority of the Fund’s outstanding voting securities in thirty (30) days’ written notice to the advisor (no prior written notice to ARGA), or (3) by the advisor upon ninety (90) days’ written notice to the Fund.
The investment advisory agreement with Altrinsic for Vanguard International Value Fund, which is effective as of June 16, 2025, is binding for a two-year period. At the end of that two-year period, the agreement will become renewable for successive one-year periods, subject to the above conditions.
Vanguard provides investment advisory services (i) to Vanguard Diversified Equity Fund through its wholly owned subsidiary, VCM and (ii) to Vanguard Commodity Strategy Fund through its wholly owned subsidiaries, VCM and VPM, each pursuant to the terms of the Fifth Amended and Restated Funds’ Service Agreement and intercompany service agreements between Vanguard and each wholly owned subsidiary (each, an 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 Funds, each 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 respective Fund. At the end of this one-year period, each ISA will continue automatically with respect to a 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 relevant Fund or (ii) by vote of a majority of the outstanding voting securities of the relevant Fund.
Securities Lending
The following table describes the securities lending activities of each Fund during the fiscal year ended
October 31, 2025. Vanguard Diversified Equity Fund, Vanguard Commodity Strategy Fund, and Vanguard Global Environmental Opportunities Stock Fund did not lend their securities during the fiscal year ended October 31, 2025.
|
Vanguard Fund
|
Securities Lending Activities
|
|
Vanguard Emerging Markets Select Stock Fund
|
|
|
Gross income from securities lending activities
|
$496,460
|
|
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
|
$189
|
|
Administrative fees not included in revenue split
|
$10,082
|
|
Indemnification fee not included in revenue split
|
$0
|
|
Rebate (paid to borrower)
|
$114,238
|
|
Other fees not included in revenue split (specify)
|
$0
|
|
Aggregate fees/compensation for securities lending activities
|
$124,509
|
|
Net income from securities lending activities
|
$371,951
|
|
|
|
|
Vanguard International Value Fund
|
|
|
Gross income from securities lending activities
|
$1,511,406
|
|
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
|
$1,358
|
|
Administrative fees not included in revenue split
|
$14,314
|
|
Indemnification fee not included in revenue split
|
$0
|
|
Rebate (paid to borrower)
|
$1,067,430
|
|
Other fees not included in revenue split (specify)
|
$0
|
|
Aggregate fees/compensation for securities lending activities
|
$1,083,102
|
|
Net income from securities lending activities
|
$428,304
|
|
|
|
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 Vanguard International Value Fund, Vanguard Commodity Strategies Fund, Vanguard Global Environmental Opportunity Fund, and Vanguard Emerging Markets Select Stock 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 Funds. 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.
Vanguard Diversified Equity Fund will purchase and sell shares of the underlying Vanguard funds by dealing directly with the issuer of the underlying funds. The Fund will incur no brokerage commissions for these transactions.
During the fiscal years ended October 31, 2023, 2024, and 2025, the Funds 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 Commodity Strategy Fund
|
Less than $1,000
|
$
|
—
|
$
|
—
|
|
Vanguard Diversified Equity Fund
|
—
|
|
—
|
|
—
|
|
Vanguard Emerging Markets Select Stock Fund
|
610,000
|
|
904,000
|
|
469,000
|
|
Vanguard Global Environmental Opportunities Stock Fund
|
28,000
|
|
32,000
|
|
40,000
|
|
Vanguard International Value Fund
|
5,004,000
|
|
6,446,000
|
|
19,441,000
|
|
|
|
|
|
|
|
Some securities that are considered for investment by a 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 a Fund and one or more of the 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 Funds’ board of trustees.
As of October 31, 2025, each 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 Commodity Strategy Fund
|
—
|
—
|
|
Vanguard Emerging Markets Select Stock Fund
|
—
|
—
|
|
Vanguard Global Environmental Opportunities Stock
|
|
|
|
Fund
|
—
|
—
|
|
Vanguard International Value Fund
|
—
|
—
|
|
|
|
|
Portfolio turnover for Vanguard Emerging Markets Select Stock. The Fund’s portfolio turnover rate was 68% during its fiscal year ended October 31, 2024, and 33% during its fiscal year ended October 31, 2025. The higher turnover rate for the Fund in fiscal year 2024 was a result of the trading that took place during the transition to a new advisor for the Fund.
PROXY VOTING
I. Proxy Voting Policies
Each Vanguard fund advised by Vanguard through VCM and/or VPM retains the authority to vote proxies received with respect to the shares of equity securities held in a portfolio advised by Vanguard through VCM and/or VPM. The trustees of the relevant Vanguard funds have adopted proxy voting procedures and guidelines, to be administered by VCM and/or VPM and their respective Investment Stewardship Teams, as appropriate, to govern proxy voting for each portfolio retaining proxy voting authority. These policies are 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 the 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 funds advised by Vanguard through VCM and/or VPM, 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 funds advised by Vanguard through VCM and/or VPM 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 VCM Investment Stewardship Team maintains separation from VPM and the VPM Investment Stewardship Team, and the VPM Investment Stewardship Team maintains separation from VCM and the VCM Investment Stewardship Team. Both Investment Stewardship Teams maintain separation 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 Investment Stewardship Teams 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
Each 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 each Fund’s performance, please see the Funds’ annual reports to shareholders, which may be obtained without charge.
DESCRIPTION OF BOND RATINGS
Moody’s Ratings Symbols
The following describe characteristics of the global long-term (original maturity of 1 year or more) bond ratings provided by Moody’s Ratings:
Aaa—Judged to be obligations of the highest quality, they are subject to the lowest level of credit risk.
Aa—Judged to be obligations of high quality, they are subject to very low credit risk. Together with the Aaa group, they make up what are generally known as high-grade bonds.
A—Judged to be upper-medium-grade obligations, they are subject to low credit risk.
Baa—Judged to be medium-grade obligations, subject to moderate credit risk, they may possess certain speculative characteristics.
Ba—Judged to be speculative obligations, they are subject to substantial credit risk.
B—Considered to be speculative obligations, they are subject to high credit risk.
Caa—Judged to be speculative obligations of poor standing, they are subject to very high credit risk.
Ca—Viewed as highly speculative obligations, they are likely in, or very near, default, with some prospect of recovery of principal and interest.
C—Viewed as the lowest rated obligations, they are typically in default, with little prospect for recovery of principal and interest.
Moody’s Ratings also supplies numerical indicators (1, 2, and 3) to rating categories. The modifier 1 indicates that the security is in the higher end of its rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a ranking toward the lower end of the category.
The following describe characteristics of the global short-term (original maturity of 13 months or less) bond ratings provided by Moody’s Ratings. This ratings scale also applies to U.S. municipal tax-exempt commercial paper.
Prime-1 (P-1)—Judged to have a superior ability to repay short-term debt obligations.
Prime-2 (P-2)—Judged to have a strong ability to repay short-term debt obligations.
Prime-3 (P-3)—Judged to have an acceptable ability to repay short-term debt obligations.
Not Prime (NP)—Cannot be judged to be in any of the prime rating categories.
The following describe characteristics of the U.S. municipal short-term bond ratings provided by Moody’s Ratings:
Moody’s Ratings for state and municipal notes and other short-term (up to 3 years) obligations are designated Municipal Investment Grade (MIG).
MIG 1—Indicates superior quality, enjoying the excellent protection of established cash flows, liquidity support, and broad-based access to the market for refinancing.
MIG 2—Indicates strong credit quality with ample margins of protection, although not as large as in the preceding group.
MIG 3—Indicates acceptable credit quality, with narrow liquidity and cash-flow protection and less well-established market access for refinancing.
SG—Indicates speculative credit quality with questionable margins of protection.
S&P Global Ratings
The following describe characteristics of the long-term (original maturity of 1 year or more) bond ratings provided by S&P Global Ratings:
B-73
AAA—These are the highest rated obligations. The capacity to pay interest and repay principal is extremely strong.
AA—These also qualify as high-grade obligations. They have a very strong capacity to pay interest and repay principal, and they differ from AAA issues only in small degree.
A—These are regarded as upper-medium-grade obligations. They have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
BBB—These are regarded as having an adequate capacity to pay interest and repay principal. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity in this regard. This group is the lowest that qualifies for commercial bank investment.
BB, B, CCC, CC, and C—These obligations range from speculative to significantly speculative with respect to the capacity to pay interest and repay principal. BB indicates the lowest degree of speculation and C the highest.
D—These obligations are in default, and payment of principal and/or interest is likely in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (–) sign to show relative standing within the major rating categories.
The following describe characteristics of short-term (original maturity of 365 days or less) bond and commercial paper ratings designations provided by S&P Global Ratings:
A-1—These are the highest rated obligations. The capacity of the obligor to pay interest and repay principal is strong. The addition of a plus sign (+) would indicate a very strong capacity.
A-2—These obligations are somewhat susceptible to changing economic conditions. The obligor has a satisfactory capacity to pay interest and repay principal.
A-3—These obligations are more susceptible to the adverse effects of changing economic conditions, which could lead to a weakened capacity to pay interest and repay principal.
B—These obligations are vulnerable to nonpayment and are significantly speculative, but the obligor currently has the capacity to meet its financial commitments.
C—These obligations are vulnerable to nonpayment, but the obligor must rely on favorable economic conditions to meet its financial commitment.
D—These obligations are in default, and payment of principal and/or interest is likely in arrears.
The following describe characteristics of U.S. municipal short-term (original maturity of 3 years or less) note ratings provided by S&P Global Ratings:
SP-1—This designation indicates a strong capacity to pay principal and interest.
SP-2—This designation indicates a satisfactory capacity to pay principal and interest.
SP-3—This designation indicates a speculative capacity to pay principal and interest.
APPENDIX A
Fund Proxy Policy – Funds with Proxy Voting Administered by Vanguard Capital Management
Introduction
This proxy voting policy (the Policy) describes general positions on matters 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 Capital Management, LLC (VCM), as well as the boards of Vanguard Asset Management, Ltd., Vanguard Fiduciary Trust Company, Vanguard Global Advisers, LLC, and Vanguard Investments Australia Ltd in connection with their management of certain equity index funds and portfolios (together with the U.S.-domiciled mutual funds and ETFs advised by VCM, 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
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
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.
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.
B-77
■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.
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■ 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.
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.
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
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
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.
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.
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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.
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
Altrinsic Global Advisors, LLC
Proxy Voting Policies and Procedures
I. STATEMENT OF POLICY
Proxy voting is an important right of shareholders and reasonable care and diligence must be undertaken to ensure that such rights are properly and timely exercised. We believe that active ownership, including exercising our proxy voting rights, benefits all stakeholders and can enhance a company’s long-term value creation. As long-term investors, proxy voting offers additional opportunities to deepen engagement with companies and foster dialogue. When Altrinsic has discretion to vote the proxies of its clients, it will vote those proxies in the best interest of its clients and in accordance with these procedures. Certain clients may retain proxy voting authority and in those circumstances Altrinsic has no proxy voting responsibility.
II. PROXY VOTING PROCEDURES
All proxies received by Altrinsic will be forwarded to a Portfolio Manager, or his designee, with a list of accounts that hold the security, together with the number of votes each account controls (reconciling duplications), and the date by which Altrinsic must vote the proxy in order to allow enough time for the completed proxy to be returned to the issuer prior to the vote taking place. Operations will keep a record or be able to readily access a report from the electronic filing of each proxy received.
Absent material conflicts (See §IV below), a Portfolio Manager, or his designee, will determine how Altrinsic should vote the proxy. The Portfolio Manager, or his designee, will provide the proxy voting ballot to Operations. Operations will provide the proxy with the proposed vote to Compliance for review. Upon completion of review, Compliance will approve the proxy ballot and return it to Operations. Operations is responsible for voting the proxy electronically in a timely and appropriate manner.
After a vote has been cast, Operations will provide Compliance with a proxy vote report.
Compliance will review this report to confirm that the proxy was voted in accordance with the provided instructions and was voted in a timely manner. Altrinsic or its clients may retain a third party to assist in coordinating and voting proxies with respect to client securities. Currently, Altrinsic does not directly engage with any third-party proxy voting companies for research.
III. VOTING GUIDELINES
In the absence of specific voting guidelines from the client, Altrinsic will vote proxies in the best interest of its clients. Each proposal will be evaluated separately but the following guidelines will generally be followed:
■Altrinsic will vote in favor of routine corporate housekeeping proposals, including election of directors (where no corporate governance issues are implicated) and selection of auditors;
■Altrinsic will vote against proposals that make it more difficult to replace members of the issuer’s board of directors, including proposals to stagger the board, cause management to be overrepresented on the board, introduce cumulative voting, introduce unequal voting rights and create supermajority voting;
■Altrinsic will vote against any resolution that gives boards authorization to issue more than 15% of share capital without shareholder approval, either through a rights issue or direct issuance; and
■Altrinsic will vote against any resolution that gives boards authority to waive pre-emption rights for material share issuances.
For other proposals, Altrinsic shall determine on a case-by-case basis the vote which is in the best interests of its clients and may take into account certain factors, including but not limited to:
■Whether the proposal was recommended by management and Altrinsic’s opinion of management;
■The effect on shareholder value;
■The issuer’s business practices;
■Stock dilution and equity-based compensation;
■Whether the proposal acts to entrench existing management; and
■Whether the proposal fairly compensates management for past and future performance
A. PROXIES OF CERTAIN NON-US ISSUERS
Proxy voting in certain countries may require “share blocking”. Share blocking is intended to facilitate the voting process; however, it also imposes constraints. Shareholders wishing to vote their proxies must deposit their shares before the date of the meeting with a designated depository which results in the shares being unavailable to sell. Accordingly, if share blocking is required, we will generally choose not to vote those shares.
CONFLICTS OF INTEREST
Compliance will review the proxy vote proposed by the Portfolio Manager, or his designee, and identify any conflicts of interest that exist between Altrinsic and its clients. Such conflicts could include, but are not limited to, Altrinsic’s or its affiliates’ relationships with the issuer or its affiliates.
If a potential or actual conflict exists, Altrinsic will determine whether voting in accordance with the voting guidelines and factors described above is in the best interests of the client including clients that are subject to ERISA. If Altrinsic determines that a material conflict exists and that voting in accordance with the voting guidelines and factors described above is not in the best interests of the clients, Altrinsic will make the appropriate disclosures to clients and either request that the client vote the proxy(ies) or abstain from voting.
DISCLOSURE
Clients may contact Compliance in order to obtain information on how Altrinsic voted such client’s proxies and/or to request a copy of these policies and procedures. If a client requests this information, a written response will be provided to the client that lists, with respect to each voted proxy about which the client has inquired (a) the name of the issuer; (b) the proposal voted upon; and (c) how Altrinsic voted the client’s proxy.
RECORDKEEPING
Compliance, with the assistance of the operations team, will maintain files relating to Altrinsic’s proxy voting policy, procedures and voting decisions in an easily accessible place. Records will be maintained and preserved for five years from the end of the fiscal year during which the last entry was made on a record, with records for the first two years kept in the offices of Altrinsic. The following records will be included in the files:
■Copies of this proxy voting policy and procedures, and any amendments thereto;
■A record of each vote that Altrinsic casts1;
■A copy of Altrinsic’s review and resolution of any proxy voting conflicts; and
■A copy of each written client request for information on how Altrinsic voted such client’s proxies, and a copy of any written response to any client request for information on how Altrinsic voted its proxies.
Operations will retain copies of each proxy statement that Altrinsic receives, provided however, that Altrinsic may rely on obtaining a copy of proxy statements from the SEC’s EDGAR system for those proxy statements that are so available2 and any document that Altrinsic created that was material to making a decision how to vote proxies, or that memorializes the decision.
1 Altrinsic may rely on a third party to retain a copy of the votes cast, provided the third party undertakes to provide a copy of the record promptly upon request.
2 Altrinsic may choose instead to have a third party retain a copy of proxy statements, provided that the third party undertakes to provide a copy of the proxy statements promptly upon request.
ARGA Investment Management, LP
Summary of Proxy Voting Policy
Consistent with our fiduciary responsibility, ARGA’s objective in voting proxies is to maximize shareholder value and to vote in a manner that reflects the best long-term, economic interest of our clients. In doing so, we follow any voting guidelines issued by clients, so long as these guidelines are consistent with ARGA’s duties under applicable law, including ERISA. ARGA’s proxy voting guidelines are the same for all the accounts we manage, where a client has delegated us with the authority to vote proxies on their behalf.
ARGA has implemented extensive procedures to ensure all proxies are received, analyzed and voted in a timely manner. In addition to information derived from our in-depth research and ongoing company analyses, ARGA utilizes the services of a third party proxy advisory firm, Glass Lewis & Co. (“Glass Lewis”), to obtain supplementary research and impartial analysis prior to voting and to administer the proxy voting process. ARGA retains responsibility for instructing Glass Lewis how to vote and we still apply our proxy voting guidelines when voting proxies on behalf of clients through Glass Lewis. This includes rejecting the advice of Glass Lewis in circumstances where ARGA determines doing so is in the best interest of our clients.
Proxy Voting Guidelines
The decision to vote in support or opposition of a proposal is based on the specific circumstances described in the proxy statement and other available information.
Generally, ARGA votes in favor of routine proposals that increase shareholder value, improve the management of a company, and maintain or increase shareholder rights and influence over a company’s board and management.
Moral or social issues are generally voted based on the economic impact of the proposal. In cases where the economic impact is not clear, a vote to “abstain” may be appropriate.
Financial and corporate governance issues take more time to consider and may be complicated by activities such as hostile takeovers and mergers. ARGA generally votes in favor of the following types of proposals:
■Election of competent, qualified directors that support the board’s independence and ensures its diversity
■Reasonable incentive compensation plans for certain key employees and directors
■Mandatory retirement age for directors
■Confidential voting, cumulative voting, proposals to lower barriers to shareholder action
■Proposals to restore shareholder ability to remove directors with or without cause
■Appointment of external auditors that provide competent advice, avoid conflicts of interest and uphold the transparency and integrity of financial reporting ARGA generally votes against the following types of financial and corporate governance proposals:
■Board entrenchment proposals and anti-takeover measures, such as “poison pill” and “golden parachute” provisions
■Compensation plans that are not aligned with shareholder interest
■Limitations on shareholder ability to act, blank check preferred stock authorizations, eliminating cumulative voting rights, and proposals to adopt classified boards
Conflicts of Interest
ARGA’s proxy voting policies provide guidelines for dealing with actual or potential conflicts of interest, when identified. These include informing clients and seeking their consent or instructions or addressing the issue through other objective means, such as deferring to the recommendation of our independent third-party advisory firm, Glass Lewis.
Glass Lewis itself has implemented Conflict Management Procedures to avoid and manage (if unavoidable) conflicts of interest arising between an issuer and Glass Lewis. For example, Glass Lewis requires any employee who serves as an executive or director of a public company to disclose the conflicts and abstain from any involvement in the research, analysis or making of any vote recommendations for such company.
Limitations on ARGA’s Proxy Voting Obligations
In certain situations, ARGA may not vote client proxies or may abstain from voting. For example:
•ARGA will not vote proxies of behalf of a client where the client has reserved the right to vote proxies itself or has delegated the right to vote to a third party.
•ARGA will not vote proxies on behalf of a client after the effective termination date of ARGA’s investment advisory agreement with such client.
•ARGA may abstain from voting proxies in circumstances where we determine doing so would have no identifiable economic benefit to the client, such as when the security is no longer held in the client’s portfolio or when the value of the portfolio holdings is insignificant.
•ARGA may abstain from voting a client’s proxy when the cost or disadvantage resulting from voting, in our judgment, outweighs the economic benefits of voting. For example, in some non-U.S. jurisdictions, the sale of securities voted may be prohibited for some period of time, usually between the record date and meeting date (“share blocking”). In general, ARGA believes that the loss of investment flexibility resulting from share blocking outweighs the benefit to be gained by voting.
•ARGA does not offer a securities lending service. Proxies for securities on loan through securities lending programs will generally not be voted, as ARGA’s clients (not ARGA) control these securities lending decisions.
•ARGA may not be able to vote proxies due to circumstances beyond our control such as a regional disaster, business continuity or cyber event involving ARGA, our proxy advisory firm or client custodians, which may prevent proxies from being voted on time, or errors and circumstances not attributable to, and beyond, ARGA’s control.
Baillie Gifford Proxy Voting Guidelines
Baillie Gifford votes proxies related to securities held by the Funds in line with Baillie Gifford’s Proxy Voting Guidelines (the “Guidelines”).
The Guidelines are developed and administered by the Environmental, Social and Governance (ESG) function of Baillie Gifford & Co. The Voting Team, which sits within the ESG function, works with the investment teams and is responsible for the voting of proxies. The ESG Oversight Group is responsible for setting the firm’s strategic approach to ESG matters in relation to investment strategies and client activities and, along with the Head of ESG, for overseeing the ESG function.
The Guidelines detail Baillie Gifford’s approach to proxy voting, framed around Baillie Gifford’s stewardship principles:
•Governance fit for purpose
•Alignment in vision and practice
•Long-term value creation
•Sustainable business practices
Baillie Gifford recognizes that given the range of markets in which the Funds invest, one set of standards is unlikely to be appropriate. The Guidelines provide some insight into our voting process and approach to matters routinely presented for a vote at shareholder meetings. They do not indicate how Baillie Gifford will vote on specific topics.
Pragmatic & Flexible Approach
Baillie Gifford’s voting analysis and decisions are driven by what they consider will promote the long-term prospects of the company, thereby supporting the outcomes they aim to deliver to clients. Voting analysis is bottom-up and led by each investment case. The Guidelines are intended to provide an insight into how Baillie Gifford approaches voting on behalf of clients, however it is important to note that Baillie Gifford assesses every company individually. Baillie Gifford will evaluate proposals on a case-by-case basis, based on what it believes to be in the best long-term interests of the clients, rather than rigidly applying a policy.
In evaluating each proxy, the Voting Team follows the Guidelines, while also considering third party analysis, Baillie Gifford’s and its affiliates own research, and discussions with company management.
The Voting Team oversees voting analysis and execution in conjunction with the investment managers. Baillie Gifford may elect not to vote on certain proxies. While Baillie Gifford endeavors to vote a Fund’s shares in all markets, on occasion this may not be possible due to a practice known as share blocking, whereby voting shares would result in Baillie Gifford being prevented from trading for a certain period of time. When voting in these markets, Baillie Gifford assesses the benefits of voting clients’ shares against the relevant restrictions. Baillie Gifford may also not vote where it has sold out of a stock following the record date.
Conflicts of Interest
Baillie Gifford recognizes the importance of managing potential conflicts of interest that may exist when voting a proxy solicited by a company with whom the Baillie Gifford & Co has a material business or personal relationship. The Voting Team is responsible for monitoring possible material conflicts of interest with respect to proxy voting and maintains an internal conflicts of interest policy.
For proxy votes that involve a potential conflict of interest, Baillie Gifford has an internal process to review the proposed voting rationale. It would consider whether business relationships between Baillie Gifford and the company have influenced the proposed vote and decide the course of action to be taken in the best interests of its clients. Where a conflict of interest is deemed not to have been prevented or managed by organizational arrangement in place, Baillie Gifford will disclose the existence of a conflict of interest.
Ninety One North America, Inc.
Summary of Proxy Voting Policy
Ownership policy and proxy voting guidelines
ESG
Contents
1.Stewardship statement
2.Proxy voting process
3.Proxy voting guidelines
3.1Leadership and strategic control
3.2Alignment with the long term
3.3Climate change
3.4Protecting client capital
3.5Audit and disclosure
1. Stewardship statement
Ninety One exists to manage other people’s money with the aim of delivering on their mandate. To successfully fulfil this purpose, we assume a stewardship role over clients’ assets. This includes exercising their ownership rights, such as by proxy voting.
Within the various jurisdictions in which we invest, we seek to contribute meaningfully towards the development of a successful stewardship framework for investment and ownership. We endorse a range of globally recognized governance principles2, which represent a broad set of standards. We view them as suitable for listed companies across most markets.
We address our stewardship responsibilities by engaging with our clients and the companies in which we invest. We endeavor to engage with the relevant company before the corporate meeting takes place, particularly if we are casting a vote that does not support management.
2G20 OECD Principles of Corporate Governance, King IV in South Africa and UK Corporate Governance Code.
2. Proxy voting process
Our approach to proxy voting guidelines:
Ninety One recognizes that local best practice codes may differ: although our proxy voting guidelines apply globally, we recognize regional differences. In markets where the codes are still evolving and not yet fully aligned with global best practice, we take this into account. In these markets, we aim to engage actively with policy makers, regulators, and stock exchanges, together with other global and local investors, to address the more critical potential shortcomings. Furthermore, we consider the size and maturity of each individual business, and if deemed appropriate, we may take a more pragmatic approach while remaining actively engaged.
The overall proxy voting guidelines rest within our broader stewardship policy framework. They focus on the following five principles whereby Ninety One:
1.Will disclose how it discharges its stewardship duties through publicly available policies and reporting.
2.Will address the internal governance of effective stewardship, including conflicts of interest and potential obstacles.
3.Will support a long-term investment perspective by integrating, engaging, escalating and monitoring material Environmental, Social and Governance (ESG) issues.
4.Will exercise its ownership rights responsibly, including engagement and voting rights.
5.Is, where appropriate, willing to act alongside other investors.
The voting guidelines in this document apply across all our holdings as allowed by legal arrangements. Some clients may have their own policy which differs from that of Ninety One. In this situation, clients are expected to opt out of Ninety One’s stewardship policy, so that an alternative system can be put in place that accommodates the client’s own guidelines. Ninety One publicly discloses its voting decisions on a quarterly basis on our website. (www.ninetyone.com/ en/investment-expertise/stewardship/proxy-voting-results)
Proxy voting process
We believe that effective shareholder rights are the cornerstone of ownership rights. To be effective, we believe the following are key:
One vote for one share. There should be one vote for one share, since this aligns shareholders’ voting rights with their economic exposure. As such, we defend the equitable treatment of all shareholders, especially minority shareholders. Where different share classes exist, one class should not have superior voting rights with respect to matters that affect the capital of other share classes.
Timely provision of information. A company’s board must ensure the timely release of all material information pertaining to voting issues. While different jurisdictions may vary in terms of record dates and timeframes, we believe that the relevant cut- off dates should allow sufficient time for all shareholders to consider the decision at hand. Critically, the timeframe should allow us to communicate with clients when necessary and carry out engagements where appropriate. Thus, we will actively oppose any resolutions clearly intended to acquire shareholder consent by default through not allowing adequate time for shareholders to consider matters.
Easy access to voting. We support voting by way of a poll and believe that votes which ask for a ‘show of hands’ disenfranchise proxy shareholders and those not present at the meeting. We view this as an abrogation of shareholders’ rights. We support the introduction of electronic voting in all markets and the removal of paper and fax-based voting. Moreover, where appropriate we will support the introduction of real-time shareholder meetings, where questions can be publicly raised through web-based links, so long as these arrangements do not remove the opportunity for shareholders to attend in person.
Clear record taking. We believe that all issues raised at shareholder meetings should be clearly recorded in detailed minutes and placed on public record. This includes the prompt online disclosure of vote outcomes, as a percentage of votes cast, and on a per-resolution basis.
The diagram overleaf shows how Ninety One executes the proxy voting process. Note that Ninety One does not outsource the voting decision to any third party, as we carry out the decision and execution of the vote in house. We use an external proxy research service provider to produce tailored reports. These reports include vote recommendations
(not instructions) that arise from applying Ninety One’s voting guidelines. The vote decision is then reached by the relevant investment teams in accordance with the investment philosophy, supported by the Engagement and Voting team. Although highly unusual, investment teams may occasionally vote differently from one another based on their unique strategies. The votes are subsequently instructed electronically via the proxy research service provider’s voting platform.
Proxy voting approach
Proxy voting is intended to act as an additional mechanism to catalyze change and reflect the ongoing engagements that the investment teams will be having with companies. We will give management and boards time to adequately respond to our questions before voting on critical issues.
■Participation in governance and proxy voting is not optional. We follow international corporate governance best practice (as contained in the ICGN principles) and apply our policy to guide our voting
Approach:
a. Proxy voting research published
b. The Engagement and Voting team assess voting and engagement history borne out of continuous investment team- led engagements and monitoring
c. The Engagement and Voting team assess governance issues and communicates to PM / senior analyst
d. Discuss with investment professionals when necessary and finalize voting decision
e. The Engagement and Voting team member submits vote via voting platform
f. Daily voting communicated to senior leaders in the business
g. Periodic reporting to clients
h. Reviewed quarterly at the Global Sustainability Committee
■Post-vote engagements are typically via a formal, signed letter and dialogue with the board or executives
■Pre-vote engagements are typically phone calls, collective conference calls, email correspondence, and management meetings
Conflicts of interest
Ninety One is committed as a fiduciary to its clients. As such, it will always seek to manage any possible conflicts that may occur through its normal business activities so that there is no material risk of damage to clients. Importantly, Ninety One will observe and enforce all ‘ethics walls’ between itself and various other operating subsidiaries of the Ninety One Group of Companies (the Group).
Ninety One has a firm-wide conflicts of interest policy as well as a separate conflict of interest committee that manages the broader remit of potential conflicts across the business. Proxy voting related conflict-of-interest considerations are addressed in this document, which also addresses listed director nominations, the engagement process and fundamental transactions. Specifically, the key areas where conflicts of interest could arise include:
1.Proxy voting: Ninety One has established processes to manage potential conflict-of-interest issues through the voting process. These conflicts can vary in nature and we respond to each case individually, following a strict process. In some instances, we would refrain from taking the voting decision ourselves and instead defer the decision to our clients. An example would be voting on holdings in listed Ninety One-managed funds and Ninety One Plc/Ltd. If underlying owners express a vote decision, the Engagement and Voting team will instruct it on the voting platform. If they decline to do so, Ninety One will cast a ‘do not vote’ at the meeting. Other, less severe conflict-of-interest risks could be instances of Ninety One board members, Ninety One senior employees and/or client senior employees serving on the boards of other publicly listed companies. To manage this, the Engagement and Voting team has put in place an internal regularly updated map of board memberships. This enables conflicted meetings to be flagged early. In these cases, the relevant portfolio manager is notified of the conflict and the normal voting process applies, including escalation to the Ninety One Investment Governance Committee, when appropriate. Some perceived conflicts of interest may be less controversial and may involve voting at a clients’ AGM etc. In this situation, portfolio managers notify the Engagement and Voting team and normal voting applies.
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2.Fundamental transactions: From time to time Ninety One and its clients may become involved on both sides of a fundamental transaction. In such cases, Ninety One will seek to ensure that all appropriate factors are considered prior to any transaction or recommendation taking place. If necessary, we will engage directly with our clients to determine an appropriate course of action.
3.Nominating directors: Ninety One will endeavor to nominate candidates that it objectively considers to be independent of Ninety One. Should Ninety One deem it necessary to nominate a candidate that is in any way affiliated to itself or its parent company, it will ensure that the candidate is not presented with any conflicts of interest that may impact their ability to fulfil their responsibilities as a director, or as an employee of Ninety One.
4.Engagement: In theory, there is a risk that Ninety One could favor some companies in the engagement process where the Group, or Ninety One, has a prior relationship and so would be failing in its duty to treat all its clients equally.
To mitigate against such a risk, Ninety One has established a governance structure to ensure that these situations are appropriately identified and managed.
Reporting to clients
Ninety One fully supports clients that take an active interest in fulfilling their ownership responsibilities. While reporting will be customized to meet specific requirements, we intend to ensure that clients are kept well informed, on a timely basis, as to how we are fulfilling ownership responsibilities on their behalf. In addition to client reporting, we also provide quarterly disclosure of our votes on the Ninety One website.
Ninety One governance structure for effective stewardship
The Ninety One Sustainability Committee (NOSC) is the custodian of Ninety One’s approach to stewardship. The NOSC comprises Ninety One’s CEO, Deputy CEOs, Co-CIOs, senior members of the investment teams and key members of its Stewardship and Governance team.
The NOSC is responsible for:
1.The annual review of Ninety One’s approach to stewardship.
2.The review and updating of Ninety One’s proxy voting guidelines.
3.Acting as the ultimate authority for any direct engagement undertaken by Ninety One on behalf of its clients.
4.Being the final arbiter of any disputes or differences of opinion with respect to possible votes or engagements.
5.Any other activities related to overall philosophy, approach and execution of the stewardship of clients’ assets.
3. Proxy voting guidelines
Ninety One has organized its assessment of corporate governance related matters under four broad areas:
■Leadership and strategic control
■Alignment with the long term
■Climate change
■Protecting client capital
■Audit and disclosure
3.1 Leadership and strategic control
The board and its directors
The board determines the strategic direction of the company, taking into account the interests of the company and all its stakeholders. The board bears ultimate responsibility for the long-term sustainable success of the company.
Although board structures vary across countries, Ninety One expects boards to:
■Be sufficiently independent, so as to protect all shareholders’ interests.
■Have adequate executive representation, so as to provide significant operational insight.
■Provide strong and diverse oversight, underpinned by a variety of skills and experiences that replicate the business’s key features and geographies.
■Maintain an optimal board size, with appropriate board refreshment, succession plans, and correct attendance to find the right balance between fresh perspectives and company history.
■We believe directors should stand for re-election regularly, and that there should be clear and detailed disclosures of a director’s background. These should be made available to shareholders to facilitate assessment of their suitability.
We expect a board to include a sufficient number of independent directors. Some common obstacles to independence include:
■Founder status.
■Family relations with senior executives or founders.
■Excessive tenure.
■Having served as an executive in the previous five years.
■Having business relationships with the company or its executives.
■A shareholding in the company of over 10% of the issued share capital.
Interlocking directorships
The chair leads the board and is responsible for its overall effectiveness in directing the company. Should the company be large and complex in nature, or the chairperson not be independent, Ninety One would require a suitably experienced and senior board member to be appointed as the Lead/Senior Independent Director (LID/SID). The LID should be able to engage independently with owners on governance-related issues. The LID should also assume key governance responsibilities, including the supervision of the annual evaluation of the chairperson. The LID should also handle specific issues relating to conflicts of interest of board members, should the chairperson not be independent. We consider a combined chairperson and CEO role to be a governance risk.
The voting guidelines arising from the above are:
■Unless there is a particular context and explanation we may not support the (re)-election of the chairperson where:
■They are considered to be not independent.
■They are the former CEO.
■There has been a clear failure to conduct periodic reviews of the performance of the board.
■They have repeatedly refused to adhere to reasonable disclosure requests.
■There has been disregard for the interests of stakeholders, the environmental and social impacts.
■There is a lack of succession planning and there is no engagement on the topic.
■Shareholder rights and the ability to communicate with the board have been impaired.
■There are persistent and unaddressed governance failures that pose a material risk, unless the board has provided a strong rationale. We may vote against a combined chair and CEO board structure, although we will consider all circumstances, including duration of appointment, the potential concentration of power and explicit disclosures on how conflicts of interest have been managed.
■We may not support non-independent directors where the overall board balance is not majority independent or does not at least meet the local market requirements.
■We generally accept proportional representation of shareholdings on the board, so long as minority shareholders’ interests are respected.
■We will, in the first instance, focus on non-independent non-executive directors who also serve as key committee members when the overall board is not majority independent.
■Where executive directors sit as committee members, we may vote against the executive directors.
■We may vote against directors, including the chairperson, if, from a sustainability point of view, there are unmitigated risks, poor disclosure, incidents and failure to appropriately manage and anticipate environmental and social risks which have resulted in the destruction of shareholder value.
■We may vote against the re-election of any director who has not attended 75% of the total number of board and relevant committee meetings in the period since they were last elected to the board, unless an appropriate explanation has been provided.
■We may vote against directors who, due to having accumulated multiple board roles at other publicly listed companies or large unlisted companies, run the risk of not being able to properly discharge their fiduciary duties. We will look at the number of external roles, the roles themselves, and the market capitalization of the companies concerned.
■We prefer boards that are adequately sized and may vote against certain directors if we consider the board to be too large and unwieldly.
■Ninety One expects timely disclosure of names and biographical details of all nominees. We may vote against candidates where such information is not disclosed.
■As a general principle, we do not support bundled directors’ elections, although we will be guided by regional best practice.
■We do not support proposals that remove directors from being re-elected by either a clean slate (100% of the board) or by rotation (usually 33% per year).
■We do not generally support the election of alternate directors.
Board committees
We expect the audit, remuneration and nomination committees to comprise non-executive directors only and be chaired by an independent non-executive director. We may vote against non-independent directors when the structures below are not in place, or when the discharge of duties by each of the committees does not meet the principles we expect companies to uphold.
Audit Committee: The audit committee has a crucial role in safeguarding investors’ interests, as it is responsible for the integrity of the financial statements, risk management and auditor appointment. Given this key role, we expect audit committees to comprise independent non-executive directors only. It should comprise a minimum of three members with at least one with recent and relevant financial expertise.
Remuneration Committee: The remuneration committee is responsible for designing and implementing the remuneration scheme for the company’s executive directors and senior management. In this capacity it should have knowledge of pay structures across the organization, including that of the CEO, as well as being aware of the gender-pay-gap ratio and other relevant diversity factors. We expect remuneration committees to be fully independent where called for by market practice. We prefer at least some remuneration committee members to be, or have been, remuneration committee members at other publicly listed companies or have similar experience.
Nomination Committee: The nomination committee is responsible for ensuring that the board comprises directors with a good range of relevant skills, knowledge and that collectively they represent diversity. It is tasked with designing and implementing robust board evaluation and succession-planning policies. We expect nomination committees to be majority independent.
■We may vote against the chair of the nomination committee if, after engagement, there is a failure to ensure appropriate diversity on the Board including for example ethnicity and gender.
■We may vote against the nomination committee chairperson or the board chairperson in cases where we believe that the necessary skills/diversity are lacking on the board.
■We may vote against the nomination committee chairperson or board chairperson in cases where there is no indication that proper and ongoing board assessments and succession planning are taking place.
3.2Alignment with the long term: remuneration and sustainability
Ninety One recognizes the importance of long-term alignment and looks at it from two main perspectives: (i) alignment of remuneration with the creation of long-term sustainable value; and (ii) stakeholder relations and the governance system’s ability to understand, monitor and mitigate any social, ethical and environmental issue risks.
We believe that long-term environmental and societal sustainability considerations should be part of a board’s long-term oversight and should be reported to stakeholders in an annual report using leading global reporting initiatives such as
the GRI (Global Reporting Initiative). The direct implications of a business’s operations on the supply chain and the impact of its products and services on both society and the environment should be carefully considered. In our engagement with boards and in our governance assessments, we may assess the board’s performance in this respect. We may vote against directors when we believe long-term sustainability considerations are not being adequately addressed.
Where appropriate, we will also work with policy makers and advocacy groups on these matters.
Ninety One expects remuneration schemes to be aligned with shareholders’ interests, and promote the long-term success of the company. We also expect the remuneration committee to be able to justify pay structures and levels in relation to three main criteria: market practice, sector practice and the company’s performance.
The hard-governance remuneration principle that Ninety One considers across all geographies is the existence of a strong and identifiable link between pay and performance. We therefore expect executive directors’ actual pay-outs to mirror shareholders’ experience and the company’s disclosure to be substantial and substantive enough for such an assessment to take place.
The voting guidelines arising from the above include:
We may vote against remuneration resolutions where there is insufficient disclosure to assess the schemes, and/or where existing disclosure does not follow the regulatory guidelines of the relevant jurisdiction:
■We place special emphasis on clear and meaningful performance metrics and targets, which should be linked to the company’s strategy and include stretching vesting levels.
■The lowering of targets may only be accepted in exceptional circumstances.
■We prefer schemes with several performance metrics and these should be relative, and under the effective control of the executive directors.
■We require a minimum performance period of three years and favor schemes with a subsequent vesting period.
■We require malus and claw back provisions to be in place.
■We may vote against remuneration resolutions if we are concerned about pay outcomes and not all the members of the remuneration committee are independent.
■We may vote against remuneration resolutions where there is not a healthy balance between fixed and variable pay and, within the latter, a relevant split between short and long-term compensation.
■We will consider not only maximum pay-outs allowed under the policy, but also year-on-year granted amounts. We will consider this in the context of the company’s size, sector, maturity and previous pay history.
■Remuneration committees should have the ability to exercise discretion within the boundaries of applicable employment laws and regulation. However, discretion should be exercised with caution and its use publicly justified.
■We may vote against untoward salary increases without appropriate justification, and excessive pension arrangements. We will vote against proposals that include variable pay within pension entitlement or where pension arrangements are not aligned with the broader workforce. We may vote against increases that are triggered entirely by benchmarking exercises.
■We will vote against plans that can be materially amended without shareholder approval.
■We do not support retrospective/inflight amendments to incentive schemes, nor the repricing of options, except in exceptional circumstances when not doing so may result in the interests of management and shareholders not being aligned.
■We do not support transaction bonuses.
■We expect dilution levels to be kept to a minimum.
■On recruitment, we expect companies to pay no more than is strictly necessary. If buy-out awards are agreed, we expect like-for-like structures together with an explanation of the link between pay and performance in the old and new schemes. We may vote against such schemes if these conditions are not met.
■We may vote against severance payments that are not aligned with the company’s remuneration policy and those exceeding contractual requirements. Severance payments should be subject to the same performance tests and pro-rated for time served. We will vote against accelerated vesting provisions and severance payments lacking disclosure of their terms.
■We may vote against any option schemes where there is automatic vesting on a change in control of the company.
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3.3 Climate change
Ninety One expect boards to be able to demonstrate ‘climate competency’ in their communications with investors and therefore supports the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD). Where climate change is identified as a material issue for the business, we expect companies to have sufficient expertise and experience on the board to ensure effective strategic and operational oversight. Ninety One may vote against the report and accounts of companies faced with material climate risk where little or no progress has been made in terms of providing the market with investment relevant climate disclosures. Furthermore, where Ninety One deem insufficient action is being taken on the issue of climate change, we might cast a vote against the chair of the Board and / or other key directors.
Ninety One typically supports shareholder proposals seeking to improve disclosures and transparency by companies facing material carbon risks. In line with our approach to any shareholder resolution, we will consider any climate-related resolution in the context of the individual business and the existing activities to climate risk. When reviewing a resolution, we also consider the progress made to date and commitments already disclosed by the company. We seek to support resolutions which are appropriate, relevant and practical for the company in question and its regional context.
3.4 Protecting client capital – capital management and shareholder rights
A board’s authority to raise capital through the issuing of shares, and its ability to decide on how it allocates the income attributable to shareholders (dividend payments or share repurchases), represents an important vote on a set of different resolutions. In many cases these resolutions are presented as renewable authorities.
While providing the board with flexibility, general authorities can result in the significant erosion of shareholder value. Therefore, Ninety One will apply constraining votes on general authorities, preferring that specific and well-motivated authorities are sought from time to time as needs arise. This is core to Ninety One’s duty to protect its clients’ capital. If there is any indication that these authorities have been used in a reckless and irresponsible manner, this will be reflected in the voting decisions relating to the leadership of the company.
Corporate actions arise from time to time which require shareholder approval. Ninety One will consider such situations on a case-by-case basis, through carefully assessing how the interests of its clients can be best served. Ninety One will actively oppose efforts on the part of management or significant shareholders to reduce the broader shareholder rights (anti-takeover measures, poison pills and alterations to company constitutions). The presentation of such resolutions to shareholders is often an indication of a governance deficiency and should be accompanied by votes relating to the leadership of the company.
On authority to issue shares Ninety One may:
■Vote against the misapplication of pre-emptive rights for any general authority more than 5% (with an overall limited of 7.5% in any rolling three-year period) of the issued share capital of the company for a large-cap company. The limit shall be 10% for small caps. In the UK, we accept a 10% issuance authority (+/-5%) if it follows the Pre-Emption Rights Group guidance.
■Vote against the general authority to issue shares with an attached right of pre-emption more than 33% of the issued share capital of the company.
■Vote against any general authority to issue shares for cash above 5%.
■Vote against any issue of shares for cash where the discount limit is more than 5%.
■Vote against all general authorities where management has a record of destroying company value as assessed by Ninety One’s own investment process.
■Vote against the issue of shares to option schemes which it has actively opposed, or where it has opposed the adoption of the remuneration report.
In a case where the company has been irresponsible with respect to the issuing of shares, Ninety One may not support the re-election of the chairperson and any incumbent directors and will not support any resolutions to issue shares. Ninety One will not support any general authorities to issue shares where the share price is substantially below its intrinsic value.
Ninety One will not support any general or specific authorities to issue shares if they are deemed to have the intention of intervening in the market for corporate control or establishing a control group in the company.
Ninety One will actively oppose any issue of shares where the underwriter is a holding company which could be perceived to be increasing its holding in the company through taking up unsubscribed shares.
On the repurchase of shares, Ninety One will consider supporting the request when:
■There is sufficient liquidity in the market.
■The company has substantial cash resources and the repurchase scheme is a viable and tax efficient method of returning cash to shareholders.
■The company has a track record of cancelling treasury shares rather than re-issuing them to share option schemes (unless this intention has been declared in advance).
■There is no conflict of interest with the company’s management incentive policy.
■The share price at the time of the general authority is substantially below its intrinsic value as assessed by Ninety One’s own investment process.
■All disclosures required by Ninety One have been made.
■There is a robust argument as to how the share repurchase scheme will add more value to shareholders than a cash dividend, repaying debt or making appropriate investments to enhance efficiency or expand operations.
■The company has sufficient balance-sheet strength and cash resources not to place it under any form of financial strain.
If Ninety One has either supported or rejected a share repurchase scheme and the resolution has been carried, but management has used this authority in an improper manner, Ninety One may vote against the re-election of the chairperson of the company and incumbent directors.
On dividends and capital distributions, Ninety One will vote against the payment of a dividend if it will clearly place the company under financial stress.
If Ninety One determines that the company is withholding income from shareholders and not using surplus reserves to any productive pursuit, such as reducing debt, it will consider:
■Making a symbolic vote against the adoption of the financial statements.
■Voting against the re-election of incumbent directors.
■Where a capital distribution is clearly being used to obfuscate another proposal by the company that diminishes shareholder rights, establishes an anti-takeover mechanism or results in any form of reduction in management accountability, Ninety One will vote against the linked resolution.
■On changes in shareholder rights via amendments to company constitutions, Ninety One will oppose any:
■Poison pill proposals in any form.
■Any resolutions that propose new share classes that have proportionately higher voting rights than existing share classes.
■Any resolutions that absolve directors from either their fiduciary responsibilities to owners or their re-election through an ordinary resolution.
3.5Audit and disclosure
Audits are among the most important protections for shareholders’ capital as well as for the company. Consequently, we attach much importance to both the quality and the independence of the audit process. The financial statements audit offers credibility and comfort to all stakeholders. The board is responsible for presenting a fair, balanced and understandable view of the financial position of the company. Therefore, it relies on both a robust internal and external audit process as well as employing an appropriate level of oversight.
When voting on resolutions relating to the appointment of auditors, we consider the suitability of the auditor on a case by case basis, considering the context of the business, the market and its respective laws. Ninety One recognizes the importance of a healthy, competitive audit market, but does not expressively take a view on whether companies should use small or large audit firms. We will also consider total fee for the audit, which should also not make up a significant portion of the audit firm’s total turnover.
Non-audit work is sometimes necessary but should be kept to a minimum and require prior audit committee approval. The detail around the fees related to both audit and non-audit work should be disclosed to shareholders.
Ninety One may vote against the re-election of the auditor if:
■There are repeated and material misstatements in the annual financial statements.
■A disproportionate (+40%) amount of the auditor’s total fee over the previous three years is derived from non-audit services. In markets where it is not required or best practice to disclose non-audit fees, we aim to engage with companies to encourage such disclosure.
■The auditor is engaged with conducting the internal audit.
■The auditor has been in place for more than 10 years and there has not been a recent tender process and there are no plans to put the audit out to tender. This may also result in withdrawal of support for the Audit Committee Chairperson.
Accurate, timely and full disclosure is essential to Ninety One’s investment and capital allocation process. Appropriate disclosures allow us to evaluate continuously a company’s position, engage with management and better understand it. Disclosure establishes the basis for dialogue and trust, which informs our ongoing engagement efforts. In alignment with international standards, disclosure should be honest, unbiased, balanced, material, clear, complete, relevant, inclusive, consistent, comparable and timely.
■We may vote against the approval of the financial statements resolution when:
■There is a clear deficiency in information.
■There has been an attempt to hide or obfuscate materials.
■There are serious omissions; or there has been an audit qualification.
■We may vote against specific transactions where there appears to be a material deficiency with respect to the information provided to shareholders.
Shareholder resolutions
The right of shareholders to file resolutions at meetings is important. We have seen a rise in these in recent years and believe that many have resulted in positive developments. Given that the resolutions which appear on agendas vary greatly – both by type and by quality – we are unable to generalize as to how we would vote. As a rule, however, we follow internal guidelines and assess each case individually, asking the following key questions:
■Does the issue raised in the resolution align with Ninety One’s philosophy and principles around sustainability and ESG?
■Would the passing of the resolution improve shareholder rights?
■Would it benefit our clients if the resolution was passed?
■Does the resolution pertain to an environmental or social issue that is a material area for the business?
■Does the company already address the issue and, if so, are we comfortable that the current company standards or progress are enough?
■Is the proposal practical and proportionate to the issue and to the company in question?
Ninety One believes that a company’s long-term response to material environmental, social and governance (ESG) issues can significantly affect long-term shareholder value. We therefore seek and encourage appropriate reporting and disclosure of these issues. As with any shareholder resolution we prefer to support those resolutions where we have engaged unsuccessfully on the same issue with the company, but we do not limit our support to this.
Typically, if the internal guidance above is satisfied, we would support proposals that seek to improve disclosure and reporting related but not limited to:
■Diversity disclosure.
■Political contributions and lobbying activities.
■Environmental reporting including climate change.
■Implementation of policies on material ESG issues.
Furthermore, there are certain shareholders rights that Ninety One will support in principle. We always review these on a case-by-case basis but unless there are mitigating circumstances, we seek to support the following proposals related to governance matters:
■Adopt proxy access.
■Separation of CEO/Chair.
■Provide right for shareholders to call special meeting.
■Provide right to act by written consent.
■Submit shareholder rights plan (poison pill) to shareholder vote.
■Reduce supermajority vote requirement.
■Remove antitakeover provisions.
■Require a majority vote for election of directors, remove plurality voting arrangements.
Ninety One reserve the filing of shareholder proposals to use as a method of last resort as we defer to active engagement with the intention to reform given our proxy access and the relationships we cultivate with the boards of our investee companies.
We have a dedicated Engagement and Voting team which is steered by our Global Sustainability Committee. The Engagement and Voting team works with our portfolio managers on engagement, proxy voting, integration strategies, ESG research and reporting.
Our stewardship work is integrated with our global investment process and covers all asset classes.
For more information contact:
Daisy Streatfeild Sustainability Director Telephone +44 20 3938 3204 daisy.streatfeild@ninetyone.com
Pzena Investment Management, LLC Proxy Voting
INTRODUCTION
As a registered investment adviser and fiduciary, Pzena Investment Management, LLC (“PIM”) exercises our responsibility, where applicable, to vote in a manner that, in our judgement, is solely in the client’s best interest and will maximize long-term shareholder value. The following policies and procedures have been established to ensure decision making is consistent with PIM’s fiduciary responsibilities and applicable regulations under the Investment Company Act, Advisers Act and ERISA.
GENERAL APPROACH
Each proxy that comes to PIM to be voted shall be evaluated per the prudent process described below, in terms of what is in the best interest of our clients. We deem the best interest of clients to be solely that which maximizes shareholder value and yields the best economic results (e.g., higher stock prices, long-term financial health, and stability). We will not subordinate the interests of our clients to any non-pecuniary interests nor will we promote non-pecuniary benefits or goals unrelated to our clients’ long-term financial interests.
PIM’s standard Investment Advisory Agreement provides that until notified by the client to the contrary, PIM shall have the right to vote all proxies for securities held in that client’s account. Where PIM has voting responsibility on behalf of a client, and absent any client-specific instructions, we generally follow the Voting Guidelines (“Guidelines”) set forth below. These Guidelines, however, are not intended as rigid rules and do not cover all possible proxy topics. Each proxy issue will be considered individually and PIM reserves the right to evaluate each proxy vote on a case-by-case basis, as long as voting decisions reflect what is in the best interest of our clients.
To the extent that, in voting proxies for an account subject to ERISA, PIM determines that ERISA would require voting a proxy in a manner different from these Guidelines, PIM may override these Guidelines as necessary in order to comply with ERISA. Additionally, because clients, including ERISA clients, do not pay any additional fees or expenses specifically related to our proxy voting, there is not a need to consider the costs related to proxy voting impacting the value of an investment or investment performance.
In those instances where PIM does not have proxy voting responsibility, we shall forward any proxy materials to the client or to such other person as the client designates.
Proxy Voting Limitations
While, subject to the considerations discussed above, PIM uses our best efforts to vote proxies, in certain circumstances it may be impractical or impossible to do so. Such instances include but are not limited to share blocking, securities lending, if PIM concludes that abstention is in our clients’ economic interests and/or the value of the portfolio holding is indeterminable or insignificant.
VOTING GUIDELINES
The following Guidelines summarize PIM’s positions on various issues of concern to investors and give an indication of how portfolio securities generally will be voted. These Guidelines are not exhaustive and do not cover all potential voting issues or the intricacies that may surround individual proxy votes. Actual proxy votes may also differ from the Guidelines presented, as we will evaluate each individual proxy on its own merit.
It is also worth noting that PIM considers the reputation, experience and competence of a company’s management and board when it researches and evaluates the merits of investing in a particular security. In general, PIM has confidence in the abilities and motives of the board and management of the companies in which we invest.
1) ROUTINE BUSINESS
PIM will typically vote in accordance with the board and management on the items below and other routine issues when adequate information on the proposal is provided.
i. Change in date and place of annual meeting (if not associated with a takeover);
ii.Change in company name;
iii.Approval of financial statements;
iv.Reincorporation (unless to prevent takeover attempts);
v.Stock splits; or
vi.Amend bylaws/articles of association to bring in line with changes in local laws and regulations.
PIM will oppose vague, overly broad, open-ended, or general “other business” proposals for which insufficient detail or explanation is provided or risks or consequences of a vote in favor cannot be ascertained.
2) CAPITAL STRUCTURE
Stock Issuance
PIM will consider on a case-by-case basis all proposals to increase the issuance of common stock, considering company-specific factors that include, at a minimum:
i. Past board performance (use of authorized shares during the prior three years);
ii.Stated purpose for the increase;
iii.Risks to shareholders of not approving the request; or
iv.Potential dilutive impact.
PIM will generally vote for such proposals (without preemptive rights) up to a maximum of 20% more than currently issued capital over a specified period, while taking into account management’s prior use of these preemptive rights. PIM will, however, vote against such proposals if restrictions on discounts are inadequate (i.e., discount limit is not stated or is in excess of 10% of the market price) and/or the limit on the number of times the mandate may be refreshed is not in line with local market practices.
3) AUDIT SERVICES
PIM is likely to support the approval of auditors unless,
i. Independence is compromised;
ii.Non-audit (“other”) fees are greater than the sum of the audit fees1, audit-related fees2 and permissible tax fees3;
iii.There is reason to believe the independent auditor has rendered an opinion which is neither accurate nor indicative of the company’s financial position; or
iv.Serious concerns about accounting practices are identified such as fraud, misapplication of Generally Accepted Accounting Principles (“GAAP”) and material weaknesses identified in Section 404 disclosures of the Sarbanes-Oxley Act of 2002.
PIM will also apply a case-by-case assessment to shareholder proposals asking companies to prohibit their auditors from engaging in non-audit services (or capping the level of non-audit services), taking into account whether the non-audit fees are excessive (per the formula above) and whether the company has policies and procedures in place to limit non-audit services or otherwise prevent conflicts of interest.
4) COMPENSATION
PIM supports reasonable incentive programs designed to attract and retain key talent. PIM typically supports management’s discretion to set compensation for executive officers, so long as the plan aligns management and shareholder interests. PIM evaluates each plan in detail to assess whether the plan provides adequate incentive to reward long-term performance and the impact on shareholder value (e.g. dilution).
Say on Pay
PIM prefers a shareholder vote on compensation plans to provide a mechanism to register discontent with the plan itself or management team performance. As long as such proposals are non-binding and worded in a generic manner (unrestrictive to actual company plans), PIM will support them. In evaluating these proposals, PIM will generally consider, at minimum: company performance, pay practices relative to industry peers, potentially problematic pay practices and/or past unresponsive behavior.
Circumstances where PIM may oppose these proposals include:
i. Restricts the company’s ability to hire new, suitable management; or
ii. Restricts an otherwise responsible management team in some other way harmful to the company.
Pay for Performance
Maintaining appropriate pay-for-performance alignment means executive pay practices must be designed to attract, retain, and appropriately motivate the key employees who drive shareholder value creation over the long term. Our evaluation of this issue will take into consideration, among other factors, the link between pay and performance; the mix between fixed and variable pay; performance goals; vesting schedule; equity-based plan costs; and dilution.
Incentive Options
PIM is generally supportive of incentive options that provide the appropriate degree of pay-for-performance alignment (as per the above) and are therefore in shareholder best interest. PIM will vote on a case-by-case basis depending on certain plan features and equity grant practices, where positive factors may counterbalance negative factors, and vice versa.
However, the following would generally cause PIM to vote against a management incentive arrangement:
i. The proposed plan is in excess of 10% of shares;
ii.The 3-year average burn rate has been substantially above industry norms;
iii.The new plan replaces an existing plan before the existing plan’s termination date and some other terms of the new plan are likely to be adverse to the maximization of investment returns; or
1Audit fees shall mean fees for statutory audits, comfort letters, attest services, consents, and review of filings with the SEC
2Audit-related fees shall mean fees for employee benefit plan audits, due diligence related to M&A, audits in connection with acquisitions, internal control reviews, consultation on financial accounting and reporting standards
3 Tax fees shall mean fees for tax compliance (tax returns, claims for refunds and tax payment planning) and tax consultation and planning (assistance with tax audits and appeals, tax advice relating to M&A, employee benefit plans and requests for rulings or technical advice from taxing authorities)
iv.The proposed plan resets options, or similarly compensates executives, for declines in a company’s stock price. This includes circumstances where a plan calls for exchanging a lower number of options with lower strike prices for an existing larger volume of options with high strike prices, even when the option valuations might be considered the same total value. However, this would not include instances where such a plan seeks to retain key executives who have been undercompensated in the past.
Golden Parachutes / Severance Agreements
PIM will vote on a case-by-case basis, considering at minimum existing change-in-control arrangements maintained with named executive officers and new or extended arrangements.
PIM will generally vote against such proposals if:
i. The proposed arrangement is excessive or not reasonable in light of similar arrangements for other executives in the company or in the company’s industry;
ii.The proposed parachute or severance arrangement is considerably more financially attractive than continued employment. Although PIM will apply a case-by-case analysis of this issue, as a general rule, a proposed severance arrangement which is three or more times greater than the affected executive’s then-current compensation shall be voted against; or
iii.The triggering mechanism in the proposed arrangement is solely within the recipient’s control (e.g., resignation).
Tax Deductibility
Votes to amend existing plans to increase shares reserved and to qualify for tax deductibility under the provisions of Section 162(m) should be considered on a case-by-case basis, considering the overall impact of the amendment(s).
5) BOARD
Director Elections
PIM generally will evaluate director nominees individually and as a group based on our assessment of record and reputation, business knowledge and background, shareholder value mindedness, accessibility, corporate governance abilities, time commitment, attention and awareness, independence, and character. PIM will apply a case-by-case approach to determine whether to vote for or against directors nominated by outside parties whose interests may conflict with our interests as shareholders, regardless of whether management agrees with the nomination.
Board Independence
PIM will generally withhold votes from or vote against any insiders and affiliated outsiders on boards that are not at least majority independent. PIM also prefers companies to have audit committees composed of entirely independent directors.
PIM may vote in favor of any such directors in exceptional circumstances where the company has shown significant improvement.
Board Size
PIM believes there is no optimal size or composition that fits every company. However, PIM prefers that the number of directors cannot be altered significantly without shareholder approval; otherwise, potentially allowing the size of the board to be used as an anti-takeover defense.
Board Tenure
PIM believes that any restrictions on a director’s tenure, such as a mandatory retirement age or length of service limits, could harm shareholder interests by forcing experienced and knowledgeable directors off the board. However, PIM prefers that boards do not have more than 50% of members serving for longer than ten years to avoid board entrenchment and ‘group-think’.
Chairman/CEO
PIM will evaluate and vote proposals to separate the Chairman and CEO positions in a company on a case-by-case basis based on our assessment of the strength of the company’s governing structure, the independence of the board and compliance with local listing requirements, among other factors. When the positions of Chairman and CEO are combined, PIM prefers that the company has a lead independent director to provide some independent oversight.
Cumulative Voting
PIM will generally vote against proposals to establish cumulative voting, as this leads to misaligned voting and economic interest in a company. PIM will, however, vote in favor of proposals for cumulative voting at controlled companies where insider voting power is greater than 50%.
Director Over-Boarding
PIM will vote such proposals on a case-by-case basis but prefers that directors do not sit on more than three additional boards. In evaluating these proposals PIM will consider, at minimum, management tenure, director business expertise and director performance.
Classified Boards
PIM generally opposes classified boards because this makes a change in board control more difficult and hence may reduce the accountability of the board to shareholders. However, these proposals will be evaluated on a case-by-case basis and will consider, at minimum, company and director performance.
Board Diversity
PIM is generally supportive of a diverse board (age, experience, race, gender etc.) that is representative of its customers and stakeholders. That said, PIM does not believe in board quotas or any restrictions on director tenure that could harm shareholder interests by preventing qualified board candidates from being nominated or forcing experienced or knowledgeable directors off the board.
6) SHAREHOLDER RIGHTS
In general PIM does not support any proposals designed to limit shareholder rights; below we have outlined some of the issues we consider most important.
Special Meetings
PIM generally supports proposals enabling shareholders to call a special meeting of a company so long as at least a 15% threshold with a one-year holding period is necessary for shareholders to do so. However, on a case-by-case basis, a 10% threshold may be deemed more appropriate should particular circumstances warrant; for example, in instances where executive compensation or governance has been an issue for a company.
One Share, One Vote
PIM is generally opposed to proposals to create dual-class capitalization structures as these provide disparate voting rights to different groups of shareholders with similar economic investments. However, PIM will review proposals to eliminate a dual-class structure on a case-by-case basis, considering, at minimum, management’s prior record.
Supermajority
PIM does not support supermajority voting provisions with respect to corporate governance issues unless it would be in the best interest of shareholders. In general, vesting a minority with veto power over shareholder decisions could deter tender offers and hence adversely affect shareholder value.
Proxy Access
PIM will assess these proposals on a case-by-case basis, but generally supports proxy access proposals that include an ownership level and holding period of at least 3% for three years or 10% for one year.
7) SOCIAL/ENVIRONMENTAL
PIM will consider environmental and social proposals on their own merits and make a case-by-case assessment. PIM will consider supporting proposals that address material issues if we believe they will protect and/or enhance the long-term value of the company.
While PIM is generally supportive of resolutions seeking additional ESG disclosures, such proposals will be evaluated on a case-by-case basis, taking into consideration whether the requested disclosure is material, incremental and of reasonable cost to the business.
8) ANTI-TAKEOVER
PIM generally supports anti-takeover measures that are in the best interest of shareholders and does not support anti-takeover measures such as poison pills that entrench management and/or thwart maximization of investment returns.
ROLES & RESPONSIBILITIES
Role of ISS
PIM has engaged Institutional Shareholder Services (“ISS”) to provide a proxy analysis with research and a vote recommendation for each shareholder meeting of the companies in our client portfolios. In engaging and continuing to engage ISS, PIM has determined that, where applicable, ISS proxy voting guidelines are consistent with ERISA’s fiduciary duties including that the votes are made in the best interest of our clients, focus on yielding the best economic results for our clients. ISS also votes, records and generates a voting activity report for our clients, and assists us with recordkeeping and the mechanics of voting. In no circumstance shall ISS have the authority to vote proxies except in accordance with standing or specific instructions given to it by PIM. PIM retains responsibility for instructing ISS how to vote, and we still apply our own Guidelines as set forth herein. PIM does not utilize pre-population or automated voting except as a safeguard mechanism designed to ensure that, in the unlikely event that we fail to submit vote instructions for a particular proxy, our shares will still get voted. If PIM does not issue instructions for a particular vote, the default is for ISS to mark the ballots in accordance with our Guidelines (when they specifically cover the item being voted on), and to refer all other items back to PIM for instruction (when there is no PIM policy covering the vote).
When voting a proxy for a security that PIM’s Research team does not cover, we will vote in accordance with our Guidelines (when they specifically cover the item being voted on) and defer to ISS’s recommendations on all other items.
PIM has also engaged ISS to assist in meeting the annual Form N-PX filing requirement for Advisers finalized by the SEC to take effect for the 2024 reporting cycle (see Regulatory Reporting).
Periodically, PIM’s Vendor Management Committee conducts a due diligence review of ISS, through which it reviews and evaluates certain key policies and procedures submitted to us by ISS. PIM’s Proxy Coordinator reconciles votable holdings against the ISS portal sharecount before each meeting. PIM also samples and reviews proxy votes when testing our Proxy Voting Policy, as part of our regular compliance testing procedures. Further, PIM reviews ISS’ procedures for receiving additional information from issuers after a proxy has been sent, incorporating that information into its recommendations, and sending that information and/or updated recommendations to PIM.
Role of Analyst
The analyst who is responsible for covering the company also votes the associated proxies since they have first-hand in-depth knowledge of the company. In evaluating proxy issues, the analyst will utilize a variety of sources to help come to a decision:
i. Information gathered through in-depth research and ongoing company analyses performed by our investment team in making buy, sell and hold decisions for our client portfolios. This process includes regular external engagements with senior management of portfolio companies and internal discussions with Portfolio Managers (“PMs”) and the Chief Investment Officer (“CIO”), as needed;
ii.ISS reports to help identify and flag factual issues of relevance and importance;
iii.Information from other sources, including the management of a company presenting a proposal, shareholder groups, and other independent proxy research services; and/or
iv.Where applicable, any specific guidelines designated in writing by a client.
Proxy Voting Committee
To help make sure that PIM votes client proxies in accordance with our fiduciary obligation to maximize shareholder value, we have established a Proxy Voting Committee (“the Committee”) which is responsible for overseeing the Guidelines. The Committee consists of representatives from Legal, Compliance ,Research, and Operations, including our Chief Compliance Officer (“CCO”), Director of Research (“DOR”), and at least one PM (who represents the interests of all PIM’s portfolio managers and is responsible for obtaining and expressing their opinions at committee meetings). The Committee will meet at least once annually and as often as necessary to oversee our approach to proxy voting.
The DOR is responsible for monitoring the analyst’s compliance with the Guidelines, the CCO is responsible for monitoring overall compliance with these procedures and an internally-designated “Proxy Coordinator” is responsible for day-to-day proxy voting activities.
CONFLICTS OF INTEREST
PIM is sensitive to conflicts of interest that may arise in the proxy voting process. PIM believes that application of the Guidelines should, in most cases, adequately address any potential conflicts of interest. However, if an actual or potential material conflict of interest has been identified, PIM has put in place a variety of different mitigation strategies as outlined below.
A potential material conflict of interest could exist in the following situations:
i. PIM manages any pension or other assets affiliated with a publicly traded company, and also holds that company’s or an affiliated company’s securities in one or more client portfolios;
ii.PIM has a client relationship with an individual who is a corporate director, or a candidate for a corporate directorship of a public company whose securities are in one or more client portfolios; or
iii.A PIM officer, director or employee, or an immediate family member thereof is a corporate director, or a candidate for a corporate directorship of a public company whose securities are in one or more client portfolios. For purposes hereof, an immediate family member is generally defined as a spouse, child, parent, or sibling.
If a potential material conflict of interest exists, the following procedures will be followed:
i. If our proposed vote is consistent with the Guidelines, above, we will vote in accordance with our proposed vote;
ii.If our proposed vote is inconsistent with or not covered by our Guidelines, but is consistent with the recommendations of ISS, we will vote in accordance with ISS recommendations; and
iii.If our proposed vote is inconsistent with or not covered by our Guidelines, and is inconsistent with the recommendations of ISS, the CCO and the DOR (or their respective designees) (the “Conflicts Committee”) will review the potential conflict and determine whether the potential conflict is material.
a. If the Conflicts Committee determines that the potential conflict is not material, we will vote in accordance with the proposed vote.
b. If the Conflicts Committee determines the potential conflict is material, the Conflicts Committee will review the proposed vote, the analysis and rationale for the vote recommendation, the recommendations of ISS and any other information the Conflicts Committee may deem necessary in order to determine whether the proposed vote is reasonable and not influenced by any material conflicts of interest. The Conflicts Committee may seek to interview the research analysts or portfolio managers or any other party it may deem necessary for making its determination.
i. If the Conflicts Committee determines the proposed vote is reasonable and not influenced by any conflicts of interest, we will vote in accordance with our proposed vote.
ii.If the Conflicts Committee cannot determine that the proposed vote is reasonable and not influenced by any conflict of interest, the Conflicts Committee will determine the best course of action in the best interest of the clients, which may include deferring to the ISS recommendation or notifying each client who holds the relevant securities of the potential conflict, to seek such client’s voting instruction.
On an annual basis, we will review and assess the conflicts policies and Code of Conduct that ISS posts on its website for sufficiency in addressing potential conflict of interest, self-dealing and improper influence issues that may affect
voting recommendations by ISS. PIM will also periodically review samples of ISS’ recommendations for voting proxies, after the vote has occurred, to ensure that ISS’ recommendations are consistent with ISS’ proxy voting guidelines, as applicable. PIM’s analysts also incorporate information regarding ISS’ potential conflicts of interest into their process when evaluating and voting proxies, and on a annual basis, our DOR reviews an updated list of ISS’ significant client relationships.
Other Situations
Client Conflict
Where PIM manages the assets of a proponent of a shareholder proposal for a company whose securities are in one or more client portfolios, the following guidance should be followed:
i. The identity of the proponent of a shareholder proposal shall not be given any substantive weight (either positive or negative) and shall not otherwise influence an analyst’s determination whether a vote for or against a proposal is in the best interest of our clients.
ii.Where PIM determines that it is in the best interest of our clients to vote against that proposal, a designated member of PIM’s client service team will notify the client-proponent and give that client the option to direct PIM in writing to vote the client’s proxy differently than it is voting the proxies of our other clients.
iii.If the proponent of a shareholder proposal is a PIM client whose assets under management with PIM constitute 30% or more of PIM’s total assets under management, and PIM has determined that it is in the best interest of our clients to vote for that proposal, PIM will disclose its intention to vote for such proposal to each additional client who also holds the securities of the company soliciting the vote on such proposal and for whom PIM has authority to vote proxies. If a client does not object to the vote within three business days of delivery of such disclosure, PIM will be free to vote such client’s proxy as stated in such disclosure.
Analyst Conflict
If the analyst voting the proxy also beneficially owns shares of the company in his/her personal trading accounts, they must notify the Proxy Coordinator and the DOR must sign off on the analyst’s votes for that company. It is the responsibility of each analyst to disclose such personal interest and obtain such approval. Any other owner, partner, officer, director, or employee of PIM who has a personal or financial interest in the outcome of the vote is prohibited from attempting to influence the proxy voting decision of PIM personnel responsible for voting client securities.
VOTING PROCEDURES
If an analyst desires to vote contrary to the Guidelines set forth in this proxy voting policy or the written proxy voting policy designated by a specific client, the analyst will discuss the vote with the CIO, and/or DOR and/or a PM for the strategy in which the security is held. The CIO, DOR and/or the PM, shall, in turn, determine how to vote the proxy based on the analyst’s recommendation and the long-term economic impact such vote will have on the securities held in client portfolios. If the CIO, DOR and/or the PM agree with the analyst’s recommendation and determine that a contrary vote is advisable the analyst will provide written documentation of the reasons for the vote.
Vote Processing
It is understood that PIM’s and ISS’ ability to commence voting proxies for new or transferred accounts is dependent upon the actions of custodian’s and banks in updating their records and forwarding proxies. PIM will not be liable for any action or inaction by any Custodian or bank with respect to proxy ballots and voting.
Client Communication
PIM will include a copy of these proxy voting policies and procedures, as they may be amended from time to time, in each new account pack sent to prospective clients. We also will update our ADV disclosures regarding these policies and procedures to reflect any material additions or other changes to them, as needed. Such ADV disclosures will include an explanation of how to request copies of these policies and procedures as well as any other disclosures required by Rule 206(4)-6 of the Advisers Act.
Return Proxies
The CCO, Proxy Coordinator, or designee shall send or cause to be sent (or otherwise communicate) all votes to the company or companies soliciting the proxies within the applicable time period designated for return of such votes, unless not possible to do so due to late receipt or other exigent circumstances.
CORPORATE ACTIONS
PIM is responsible for monitoring both mandatory (e.g. calls, cash dividends, exchanges, mergers, spin-offs, stock dividends and stock splits) and voluntary (e.g. rights offerings, exchange offerings, and tender offers) corporate actions. Operations personnel will ensure that all corporate actions received are promptly reviewed and recorded in PIM’s portfolio accounting system, and properly executed by the custodian banks for all eligible portfolios. On a daily basis, a file of PIM’s security database is sent to a third-party service, Vantage, via an automated upload which then provides corporate action information for securities included in the file. This information is received and acted upon by the Operations personnel responsible for corporate action processing. In addition, PIM receives details on voluntary and mandatory corporate actions from the custodian banks via email or online system and all available data is used to properly understand each corporate event.
Voluntary Corporate Actions
The Portfolio Management team is responsible for providing guidance to Operations on the course of action to be taken for each voluntary corporate action received in accordance with the standards described above for proxy voting, including, but not limited to, acting in the best interest of clients to maximize long-term shareholder value and yield the best economic results. In some instances, if consistent with such standards, the Portfolio Management team may maintain standing instructions on particular event types. As appropriate, Legal and Compliance may be consulted to determine whether certain clients may participate in certain corporate actions. Operations personnel will then notify each custodian bank, either through an online interface, via email, or with a signed faxed document of the election selected. Once all necessary information is received and the corporate action has been vetted, the event is processed in the portfolio accounting system and filed electronically. A log of holdings information related to the corporate action is maintained for each portfolio in order to confirm accuracy of processing.
CLASS ACTIONS
PIM shall not have any responsibility to initiate, consider or participate in any bankruptcy, class action or other litigation against or involving any issue of securities held in or formerly held in a client account or to advise or take any action on behalf of a client or former client with respect to any such actions or litigation.
RECORD KEEPING
PIM or ISS, on PIM’s behalf, maintains (i) copies of the proxy materials received by PIM for client securities; (ii) records of proxies that were not received and what actions were taken to obtain them; (iii) votes cast on behalf of clients by account; (iv) records of any correspondence made regarding specific proxies and the voting thereof; (v) client requests for proxy voting information (including reports to mutual fund clients for whom PIM has proxy voting authority containing information they need to satisfy their annual reporting obligations under Rule 30b-1-4 and to complete Form N-PX); (vi) documents prepared by PIM to inform and/or memorialize a voting decision, including these policies and procedures and any documentation related to a material conflict of interest; and (vii) records of any deviations from broad Guidelines. Such records will be maintained for a minimum of six years.
POLICY REVIEW
The Proxy Voting Committee reviews these Voting Guidelines and procedures at least annually and makes such changes as it deems appropriate, considering current trends and developments in corporate governance and related issues, as well as operational issues facing PIM and applicable regulations under the Investment Company Act, Advisers Act and ERISA.
Sprucegrove Proxy Voting Policies and Procedures
Introduction
Sprucegrove Investment Management Ltd. is an investment management firm, in the specialized area of International and Global Equities, which provides investment management services for a variety of institutional investors. As a registered investment advisor, Sprucegrove has a fiduciary duty to adopt policies and procedures reasonably designed
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to ensure that proxies are voted in the best interests of clients. Sprucegrove’s Proxy Voting Guidelines and ESG Guidelines (together, the “Guidelines”) have been developed with the overriding principle of ensuring corporations manage their business (es) in the long-term interests of shareholders and be good stewards of long-term capital while being free from the influence of conflicts of interest.
Sprucegrove subscribes to third party information services to assist and supplement our own research and proxy deliberations, however Sprucegrove retains complete authority for voting all proxies. Generally, our policy is to vote all meetings and all proposals consistently for all clients. Select clients may also provide their own guidelines for consideration during our voting deliberation, however the ultimate voting decision rests with Sprucegrove.
The Policy is designed to address potential material conflicts of interest, which is principally addressed through set guidelines for various common proposals. Any departure from the voting Guidelines must be documented and approved by Sprucegrove’s Risk & Compliance Department in advance of voting. When Sprucegrove votes against the company’s recommendation (s), Sprucegrove communicates with management as to the reason(s) why.
Investment Operations Proxy Administrator
Sprucegrove’s proxy voting process is administered by its Proxy Administrator, which is part of its Investment Operations Department. Procedural oversight is provided by Sprucegrove’s Risk & Compliance Department.
Role of Third Parties
Sprucegrove subscribes to certain advisory and proxy voting services to assist us in analyzing proxies and corporate governance issues including corporate social responsibility. These proxy advisory services provide independent analysis and recommendations regarding various companies’ proxy proposals. This information serves to supplement Sprucegrove’s proprietary research and ultimately Sprucegrove’s portfolio managers are responsible for voting decisions in accordance with the Guidelines.
Voting Process
Sprucegrove uses its Guidelines for direction. Each situation is unique and the Guidelines are not intended to be a set of rigid rules. Application of professional judgement and experience to make decisions that are in the best interest of our clients is vital to the proxy voting process.
The Guidelines cover Sprucegrove’s approach to governance and sustainability matters including the following areas:
■General Matters
■Board of Directors
■Management and Director Compensation
■Takeover Protection
■Shareholder Rights
■Shareholder / Stakeholder Proposals
■Auditors
■ESG proposals
Sprucegrove’s Portfolio Managers are responsible for final decision-making as it relates to proxy voting. In evaluating each proxy, Portfolio Managers follow the Guidelines, while also considering proprietary and third party analysis, as well as discussions with company management.
Sprucegrove’s Proxy Administrator oversees the administration of proxy voting, including recordkeeping and awareness of stated Guidelines for each proposal. Where voting recommendations are inconsistent with the Guidelines, the Proxy Administrator ensures that Risk & Compliance Department approval has been obtained prior to casting such votes.
Sprucegrove may choose not to vote a proxy or may be unable to vote a proxy in certain situations, such as:
■Where fees imposed upon the exercise of a vote outweigh the benefit of voting;
■Legal barriers to voting, including potential share-blocking or reregistration which may impact our ability to settle investment trades;
■Sprucegrove has sold shares prior to the meeting date;
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■ Sprucegrove believes it is not in the best interest of the client to vote.
Conflicts of Interest
Portfolio Managers are responsible for identifying potential conflicts of interest that may arise in the proxy voting process. In instances where a potential conflict exists, the Portfolio Managers will refer the matter to Sprucegrove’s Board of Directors for resolution, which may include obtaining client consent before voting.
Environmental, Social Responsibility and Ethical Considerations
As an institutional investor, Sprucegrove has adopted the six principles of the Principles for Responsible Investing charter where consistent with our fiduciary responsibilities. Sprucegrove’s Guidelines includes Environmental, Social and Corporate Governance (ESG) considerations, which outlines our approach to ESG. Sprucegrove may take ESG into consideration when voting, and, consistent with our fiduciary duty, vote proposals in the best interests of clients. Sprucegrove believes that corporations that adhere to high ESG standards should be ceteris paribus good long-term investments.
Review of Policies and Guidelines
The proxy voting policies and the Guidelines are reviewed at least annually.
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.
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.
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APPENDIX C
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Proxy Voting Under Vanguard Investor Choice
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Vanguard Trust
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Vanguard Fund
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Vanguard Index Funds
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Vanguard 500 Index Fund
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Vanguard Index Funds
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Vanguard Extended Market Index Fund
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Vanguard Index Funds
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Vanguard Growth Index Fund
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Vanguard Index Funds
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Vanguard Large-Cap Index Fund
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Vanguard Index Funds
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Vanguard Mid-Cap Index Fund
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Vanguard Index Funds
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Vanguard Value Index Fund
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Vanguard Institutional Index Funds
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Vanguard Institutional Index Fund
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Vanguard Specialized Funds
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Vanguard Dividend Appreciation Index Fund
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Vanguard Tax-Managed Funds
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Vanguard Tax-Managed Capital Appreciation Fund
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Vanguard Tax-Managed Funds
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Vanguard Tax-Managed Small-Cap Fund
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Vanguard Whitehall Funds
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Vanguard High Dividend Yield Index Fund
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Vanguard Scottsdale Funds
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Vanguard Russell 1000 Index Fund
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Vanguard Admiral Funds
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Vanguard S&P 500 Growth Index Fund
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Vanguard Admiral Funds
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Vanguard S&P 500 Value Index Fund
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Vanguard Admiral Funds
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Vanguard S&P Mid-Cap 400 Index Fund
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Vanguard Admiral Funds
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Vanguard S&P Mid-Cap 400 Growth Index Fund
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Vanguard Admiral Funds
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Vanguard S&P Mid-Cap 400 Value Index Fund
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Vanguard Admiral Funds
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Vanguard S&P Mid-Cap 600 Index Fund
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Vanguard Admiral Funds
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Vanguard S&P Mid-Cap 600 Growth Index Fund
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Vanguard Admiral Funds
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Vanguard S&P Mid-Cap 600 Value Index Fund
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Vanguard World Fund
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Vanguard ESG U.S. Stock ETF
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Vanguard World Fund
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Vanguard Mega Cap Index Fund
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Vanguard World Fund
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Vanguard Energy Index Fund
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Vanguard World Fund
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Vanguard Materials Index Fund
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Vanguard World Fund
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Vanguard Industrials Index Fund
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Vanguard World Fund
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Vanguard Consumer Discretionary Index Fund
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Vanguard World Fund
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Vanguard Consumer Staples Index Fund
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Vanguard World Fund
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Vanguard Health Care Index Fund
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Vanguard World Fund
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Vanguard Financials Index Fund
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Vanguard World Fund
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Vanguard Information Technology Index Fund
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Vanguard World Fund
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Vanguard Communication Services Index Fund
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Vanguard World Fund
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Vanguard Utilities Index Fund
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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.
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Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
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Published December 2025 | 2
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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.
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Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
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Published December 2025 | 3
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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.
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Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
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Published December 2025 | 4
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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.
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Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
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Published December 2025 | 5
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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.
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Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
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Published December 2025 | 6
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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.
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Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
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Published December 2025 | 7
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Wealth-Focused Policy Overview
III. Detailed vote recommendations
View recommendations per category and region.
Proposals by management | Accounting
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Proposal
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Region(s) to
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Region(s) to
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Vote Recommendation
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Include
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Exclude
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Accept an accounting
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World
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We generally recommend FOR because
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irregularity
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according to our policy, the financial statements
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give a true and fair view of the financial position
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of the Company for the recent fiscal year, and of
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its financial performance and its cash flows for
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the year then ended in accordance with the law.
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Accept the financial
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World
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North America
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We generally recommend FOR because
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statements/statutory
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according to our policy, the financial statements
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report
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give a true and fair view of the financial position
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of the Company for the recent fiscal year, and of
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its financial performance and its cash flows for
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the year then ended in accordance with the law.
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Approve a special
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China, Western
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We recommend FOR this Proposal, because
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transactions financial
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Europe, Latin
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according to our policy, approving the special
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report
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America
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transactions financial report ensures
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transparency and gives shareholders a clear
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overview of significant transactions, supporting
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informed decision-making.
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Receive the annual report
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World
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North America
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We generally recommend FOR because
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and accounts
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according to our policy, the financial statements
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give a true and fair view of the financial position
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of the Company for the recent fiscal year, and of
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its financial performance and its cash flows for
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the year then ended in accordance with the law.
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Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
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Published December 2025 | 8
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Wealth-Focused Policy Overview
Proposals by management | Auditor
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Proposal
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Region(s) to
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Region(s) to
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Vote Recommendation
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Include
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Exclude
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Approve the discharge of
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Western
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We generally recommend FOR because after
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the auditors
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Europe
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reviewing the auditor acts for the fiscal year that
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has ended, we find it advisable to grant
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discharge from liability to the auditors.
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Ratify auditor AND director
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World
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United States
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We generally recommend FOR the auditor when
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remuneration
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the non-audit fees do not make up a substantial
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proportion of all fees the auditor is charging the
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company and when the total audit fees are
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reasonable given the company's size. The
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purpose is to maintain some independence for
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the auditor.
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Ratify auditor appointment
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Emerging &
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We generally recommend FOR the auditor when
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and remuneration
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Frontier Asia-
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the non-audit fees do not make up a substantial
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Pacific, Western
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proportion of all fees the auditor is charging the
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Europe
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company and when the total audit fees are
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reasonable given the company's size. The
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purpose is to maintain some independence for
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the auditor.
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Ratify the appointment of a
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World
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We recommend FOR this Proposal, because
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non-statutory auditor
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according to our policy, ratifying the
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appointment of a non-statutory auditor
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strengthens oversight and reinforces the
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integrity of reporting.
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Ratify the appointment of a
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China, Western
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We recommend FOR this Proposal, because
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special transactions auditor
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Europe, Latin
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according to our policy, ratifying the
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America
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appointment of a special transactions auditor
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ensures independent review of significant
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transactions and strengthens disclosure and
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transparency.
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Ratify the appointment of
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World
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We generally recommend FOR the auditor when
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an auditor
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the non-audit fees do not make up a substantial
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proportion of all fees the auditor is charging the
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company and when the total audit fees are
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reasonable given the company's size. The
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purpose is to maintain some independence for
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the auditor.
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|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 9
|
Wealth-Focused Policy Overview
|
Ratify the appointment of
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Western
|
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We recommend AGAINST this Proposal, because
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statutory AND
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Europe
|
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according to our policy, ratifying the
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sustainability auditors
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appointment of statutory and sustainability
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auditors may not directly align with the priorities
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of shareholders, as the proposal emphasizes ESG
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and non-financial reporting oversight rather
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than measures that drive immediate financial
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returns or shareholder value.
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Remove the auditor
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World
|
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We generally recommend a vote FOR the
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removal of the auditors whenever the Company
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may deem it necessary to ensure auditor
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independence and integrity.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 10
|
Wealth-Focused Policy Overview
Proposals by management | Capitalization
|
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Proposal
|
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Region(s) to
|
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Region(s) to
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Vote Recommendation
|
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Include
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Exclude
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Allot securities
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Western
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We generally recommend FOR because
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Europe
|
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according to our policy, the allotment of shares
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or securities will enable the Company to
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capitalize on future business opportunities. This
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flexibility provides the Company with the ability
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to act promptly and strategically to business
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decisions, ensuring it remains competitive and
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well-positioned for long-term success.
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Appropriate
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World
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North America
|
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We recommend FOR this Proposal, because
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profits/surplus/retained
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according to our policy, allocating corporate
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earnings
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earnings through appropriate distribution of
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profits, surplus, or retained earnings supports
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shareholder interests and long-term value
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creation.
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Approve a share
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Emerging &
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We generally recommend a vote FOR because
|
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repurchase plan
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Frontier Asia-
|
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according to our policy, the proposed share
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Pacific, Western
|
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repurchase plan would grant the Company
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Europe
|
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greater flexibility in managing its capital
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structure. Furthermore, share repurchases are
|
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widely regarded as an effective strategy for
|
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enhancing shareholder value and financial
|
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position of companies.
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Approve a stock exchange
|
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World
|
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|
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We generally recommend FOR because
|
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listing
|
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according to our policy, approval of the stock
|
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exchange listing would create investment
|
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opportunities for the Company and provide
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greater liquidity while diversifying the risks
|
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associated with it.
|
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Approve a stock terms
|
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|
World
|
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|
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This proposal is considered on a case-by-case
|
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|
revision
|
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|
basis by the guidelines committee.
|
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|
Approve adjustment in the
|
|
Emerging &
|
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|
|
|
We recommend FOR this Proposal, because
|
|
|
share repurchase price
|
|
Frontier Asia-
|
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|
|
according to our policy, allocating corporate
|
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|
Pacific
|
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|
|
earnings through appropriate distribution of
|
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|
|
profits, surplus, or retained earnings supports
|
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|
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shareholder interests and long-term value
|
|
|
|
|
|
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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
|
|
|
|
|
Company’s shareholders. Moreover, we believe
|
|
|
|
|
that the scope of committee responsibilities as
|
|
|
|
|
requested in the proposal are already fulfilled by
|
|
|
|
|
the board of directors.
|
|
Declassify the board
|
World
|
|
We generally recommend FOR when the
|
|
|
|
|
company performance (as measured by TSR) is
|
|
|
|
|
the bottom 20th percentile of the universe.
|
|
Decrease the required
|
World
|
|
We generally recommend AGAINST because
|
|
director experience /
|
|
|
according to our policy, a diversified board
|
|
expertise / diversity
|
|
|
would encourage good governance and enhance
|
|
|
|
|
shareholder value. Bringing together a diverse
|
|
|
|
|
range of skills and experience is necessary in
|
|
|
|
|
building a constructive and challenging board.
|
|
Designate an independent
|
World
|
|
We generally recommend AGAINST because
|
|
chairman
|
|
|
according to our policy, we believe that the
|
|
|
|
|
current Board leadership structure has been
|
|
|
|
|
effective in the Company's sustained long-term
|
|
|
|
|
performance. Thus, we believe that the Board
|
|
|
|
|
should have the flexibility in determining the
|
|
|
|
|
Board’s leadership structure rather than
|
|
|
|
|
committing to a one-size-fits-all policy.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 46
|
Wealth-Focused Policy Overview
|
Elect a director to board
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
according to our policy, allowing a shareholder
|
|
|
|
|
to elect a director to a board is not in the best
|
|
|
|
|
interests of the Company. Instead, the board
|
|
|
|
|
should continue to nominate directors for
|
|
|
|
|
shareholder approval, as they possess the
|
|
|
|
|
expertise and resources to find the most
|
|
|
|
|
qualified candidates.
|
|
Eliminate term limits
|
World
|
|
We generally recommend FOR because
|
|
|
|
|
according to our policy, elimination of term
|
|
|
|
|
limits will help the Company to attract, retain
|
|
|
|
|
and motivate directors who can contribute
|
|
|
|
|
valuable insights and long-term strategic
|
|
|
|
|
guidance. This will also ensure continuity and
|
|
|
|
|
strengthen the Company's governance by
|
|
|
|
|
retaining knowledgeable and capable leadership
|
|
|
|
|
of experienced directors.
|
|
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
|
|
|
|
|
their age, potentially undermining the
|
|
|
|
|
effectiveness of the board.
|
|
Ensure compensation
|
World
|
|
We generally recommend AGAINST because
|
|
advisor independence
|
|
|
according to our policy, this proposal is
|
|
|
|
|
unnecessary as existing SEC regulations already
|
|
|
|
|
require sufficient disclosures regarding the
|
|
|
|
|
Company’s comprehensive recoupment policies
|
|
|
|
|
and practices.
|
|
Establish a stakeholder
|
World
|
|
We generally recommend AGAINST because
|
|
position to board
|
|
|
according to our policy, the current selection
|
|
|
|
|
process, composition and skillset of the board of
|
|
|
|
|
directors already captures stakeholder
|
|
|
|
|
representation in the board room. As such,
|
|
|
|
|
approval of the proposal would be redundant
|
|
|
|
|
and duplicative.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 47
|
Wealth-Focused Policy Overview
|
Introduce a retirement age
|
World
|
|
We generally recommend AGAINST this proposal
|
|
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
|
|
|
|
|
their age, potentially undermining the
|
|
|
|
|
effectiveness of the board.
|
|
Introduce term limits
|
World
|
|
We generally recommend against this proposal
|
|
|
|
|
because, in accordance with our policy, it would
|
|
|
|
|
not serve a useful purpose. Having experienced
|
|
|
|
|
directors on the board is crucial for the
|
|
|
|
|
Company’s long-term success and the
|
|
|
|
|
enhancement of shareholder value.
|
|
Require director
|
World
|
|
We generally recommend AGAINST because
|
|
experience / expertise /
|
|
|
according to our policy, it is in the best interests
|
|
diversity or other limits on
|
|
|
of the shareholders for the board and
|
|
the board
|
|
|
nominating committee to manage the
|
|
|
|
|
composition and qualifications of the board
|
|
|
|
|
members.
|
|
Require stock ownership
|
World
|
|
We generally recommend AGAINST because
|
|
for directors
|
|
|
according to our policy, imposing a mandatory
|
|
|
|
|
requirement on stock ownership for directors
|
|
|
|
|
could potentially put the Company in a
|
|
|
|
|
competitive disadvantage in retaining the best
|
|
|
|
|
directors. Such a requirement might limit the
|
|
|
|
|
Company’s ability to fully capitalize on an
|
|
|
|
|
individual’s skills, expertise, and contributions.
|
|
Separate the chairman and
|
World
|
|
We generally recommend AGAINST because
|
|
CEO positions
|
|
|
according to our policy, we believe that the
|
|
|
|
|
Board should have the flexibility in determining
|
|
|
|
|
the Board’s leadership structure rather than
|
|
|
|
|
committing to a one-size-fits-all policy.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 48
|
Wealth-Focused Policy Overview
Proposals by shareholders | Health, Safety, and Operations
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt a paid sick leave
|
|
|
World
|
|
|
|
|
|
We generally recommend a vote AGAINST
|
|
|
|
policy
|
|
|
|
|
|
|
|
|
because according to our policy, approving this
|
|
|
|
|
|
|
|
|
|
|
|
|
proposal would lead to unnecessary costs and
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses. Additionally, this policy is not
|
|
|
|
|
|
|
|
|
|
|
|
|
universally applicable, as it would only affect the
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's non-unionized employees. In
|
|
|
|
|
|
|
|
|
|
|
|
|
contrast, unionized employees are typically
|
|
|
|
|
|
|
|
|
|
|
|
|
governed by collective bargaining agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
that address such matters.
|
|
|
|
Modify business operations
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
with a high-risk country,
|
|
|
|
|
|
|
|
according to our policy, the company’s existing
|
|
|
entity, region, etc.
|
|
|
|
|
|
|
|
operational protocols in conflict-affected and
|
|
|
|
|
|
|
|
|
|
|
|
high-risk areas already address the concerns
|
|
|
|
|
|
|
|
|
|
|
|
raised in the proposal. In our view, reducing or
|
|
|
|
|
|
|
|
|
|
|
|
ceasing operations in these areas could
|
|
|
|
|
|
|
|
|
|
|
|
negatively impact the company’s profitability
|
|
|
|
|
|
|
|
|
|
|
|
and long-term sustainability.
|
|
|
Reduce sales/marketing of
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
alcohol products/services
|
|
|
|
|
|
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
|
|
|
|
|
|
|
|
is unnecessary as the Company already complies
|
|
|
|
|
|
|
|
|
|
|
|
|
with the applicable federal laws and regulations
|
|
|
|
|
|
|
|
|
|
|
|
|
and given the Company’s nature of business, we
|
|
|
|
|
|
|
|
|
|
|
|
|
believe that approval of the proposal would
|
|
|
|
|
|
|
|
|
|
|
|
|
significantly impact its operations.
|
|
|
|
Reduce sales/marketing of
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
drug products/services
|
|
|
|
|
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
|
|
|
|
|
|
|
is unnecessary as the Company already complies
|
|
|
|
|
|
|
|
|
|
|
|
with the applicable federal laws and regulations
|
|
|
|
|
|
|
|
|
|
|
|
and given the Company’s nature of business, we
|
|
|
|
|
|
|
|
|
|
|
|
believe that approval of the proposal would
|
|
|
|
|
|
|
|
|
|
|
|
significantly impact its operations.
|
|
|
Reduce sales/marketing of
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
gambling products/services
|
|
|
|
|
|
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
|
|
|
|
|
|
|
|
is unnecessary as the Company already complies
|
|
|
|
|
|
|
|
|
|
|
|
|
with the applicable federal laws and regulations
|
|
|
|
|
|
|
|
|
|
|
|
|
and given the Company’s nature of business, we
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 49
|
Wealth-Focused Policy Overview
|
|
|
|
believe that approval of the proposal would
|
|
|
|
|
significantly impact its operations.
|
|
Reduce sales/marketing of
|
World
|
|
We generally recommend AGAINST because
|
|
other products/services
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
is unnecessary as the Company is already
|
|
|
|
|
required to comply with applicable federal laws
|
|
|
|
|
and regulations and given the Company’s nature
|
|
|
|
|
of business, we believe that approval of the
|
|
|
|
|
proposal would significantly impact its
|
|
|
|
|
operations.
|
|
Reduce sales/marketing of
|
World
|
|
We generally recommend AGAINST because
|
|
pornography
|
|
|
according to our policy, approval of the proposal
|
|
products/services
|
|
|
would significantly impact the Company’s
|
|
|
|
|
business operations.
|
|
Reduce sales/marketing of
|
World
|
|
We generally recommend AGAINST because
|
|
tobacco/vape
|
|
|
according to our policy, approval of the proposal
|
|
products/services
|
|
|
is unnecessary as the Company already complies
|
|
|
|
|
with the applicable federal laws and regulations
|
|
|
|
|
and given the Company’s nature of business, we
|
|
|
|
|
believe that approval of the proposal would
|
|
|
|
|
significantly impact its operations.
|
|
Reduce sales/marketing of
|
World
|
|
We generally recommend AGAINST because
|
|
unhealthy foods/beverages
|
|
|
according to our policy, the Company is already
|
|
|
|
|
addressing the issues related to the
|
|
|
|
|
consumption of its products through its
|
|
|
|
|
sustainability and current marketing initiatives.
|
|
Reduce sales/marketing of
|
World
|
|
We generally recommend AGAINST because
|
|
weapon products/services
|
|
|
according to our policy, the Company has in
|
|
|
|
|
place extensive procedures to ensure that
|
|
|
|
|
weapon sales are made in strict compliance with
|
|
|
|
|
all applicable United States laws and regulations.
|
|
Report on artificial
|
World
|
|
We generally recommend a vote AGAINST
|
|
intelligence
|
|
|
because according to our policy, the proposed
|
|
|
|
|
report on artificial intelligence would be an
|
|
|
|
|
unnecessary addition to the Company’s existing
|
|
|
|
|
efforts in AI reporting. Also, approval of the
|
|
|
|
|
proposal would pose significant administrative
|
|
|
|
|
costs and financial burden to the Company.
|
|
Report on content
|
World
|
|
We generally recommend AGAINST because
|
|
management
|
|
|
according to our policy, approval of this proposal
|
|
|
|
|
would result in the Company incurring
|
|
|
|
|
unnecessary costs and expenses. Additionally, it
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 50
|
Wealth-Focused Policy Overview
|
|
|
|
is in the best interests of shareholders for the
|
|
|
|
|
board to manage the Company’s disclosures and
|
|
|
|
|
risks.
|
|
Report on cybersecurity
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
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.
|
|
Report on data privacy
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
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.
|
|
Report on high-risk country
|
World
|
|
We generally recommend AGAINST because
|
|
operations
|
|
|
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.
|
|
Report on intellectual
|
World
|
|
We generally recommend AGAINST because
|
|
property transfers
|
|
|
according to our policy and given the current
|
|
|
|
|
applicable laws and regulations that the
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 51
|
Wealth-Focused Policy Overview
|
|
|
|
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 maternal health
|
World
|
|
We generally recommend AGAINST because
|
|
outcomes
|
|
|
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.
|
|
Report on plant closure
|
World
|
|
We generally recommend AGAINST because
|
|
community impacts
|
|
|
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.
|
|
Report on product
|
World
|
|
We generally recommend AGAINST because
|
|
information / production
|
|
|
according to our policy, approval of this proposal
|
|
|
|
|
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 product
|
World
|
|
We generally recommend AGAINST because
|
|
pricing/distribution
|
|
|
according to our policy, approval of this proposal
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 52
|
Wealth-Focused Policy Overview
|
|
|
|
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 public health
|
World
|
|
We generally recommend AGAINST because
|
|
risks
|
|
|
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.
|
|
Report on suppliers /
|
World
|
|
We generally recommend AGAINST because
|
|
partners / customers /
|
|
|
according to our policy, approval of this proposal
|
|
sales
|
|
|
would result in the Company incurring
|
|
|
|
|
unnecessary costs and expenses. Additionally, it
|
|
|
|
|
is in the best interests of shareholders for the
|
|
|
|
|
board to manage the Company’s disclosures and
|
|
|
|
|
risks.
|
|
Report on worker health
|
World
|
|
We generally recommend AGAINST because,
|
|
and safety
|
|
|
according to our policy and given the current
|
|
|
|
|
laws and regulations that the company is already
|
|
|
|
|
required to comply with, we do not believe the
|
|
|
|
|
requested report would provide meaningful
|
|
|
|
|
additional value beyond existing policies,
|
|
|
|
|
processes, practices, and resources.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 53
|
Wealth-Focused Policy Overview
Proposals by shareholders | Human Resources and Rights
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Address fair lending
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST the proposal
|
|
|
|
|
|
|
|
|
|
|
|
|
because, according to our policy, it would not
|
|
|
|
|
|
|
|
|
|
|
|
|
meaningfully improve the Company’s existing
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robust policies and risk oversight structure, nor
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enhance any current disclosures that provide
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shareholders with meaningful information on
|
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how the Company addresses and oversees risks
|
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related to discrimination. Additionally, we are
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concerned that such an evaluation could, in
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today’s highly litigious environment,
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inadvertently provide a roadmap for lawsuits
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against the Company, potentially leading to
|
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significant legal costs for shareholders in the
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long term.
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Address income inequality
|
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World
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We generally recommend AGAINST because
|
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according to our policy, the Company’s existing
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compensation processes are guided by the
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fundamental principle that decisions are made
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on the basis of the individual's personal
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capabilities, qualifications and contributions to
|
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the Company's needs and not on gender.
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Moreover, given the Company’s current efforts
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to equal employment opportunity, we believe
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that approval of this proposal will accrue
|
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unnecessary costs and administrative burden to
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the Company.
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Address labor disputes
|
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World
|
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We generally recommend AGAINST this proposal
|
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because, in accordance with our policy, the
|
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Company has already addressed the labor
|
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concerns raised in the proposal. As such,
|
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approval of the requested report is unnecessary
|
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and would result in significant administrative
|
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costs, diverting Company resources from more
|
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relevant and meaningful priorities.
|
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|
|
Address sexual harassment
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
complaints
|
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|
|
|
|
|
|
according to our policy, adoption of the proposal
|
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is unnecessarily duplicative of the Company’s
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 54
|
Wealth-Focused Policy Overview
|
|
|
|
efforts to deter incidents of sexual harassment
|
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|
|
|
through its own policies and practices.
|
|
|
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|
|
Adopt an anti-
|
World
|
|
We generally recommend AGAINST because
|
|
discrimination policy
|
|
|
according to our policy, this could put the
|
|
|
|
|
Company in an uncompetitive position in terms
|
|
|
|
|
of hiring prospective talents due to the rigid
|
|
|
|
|
requirements of the proposal.
|
|
Adopt diversity-based
|
World
|
|
We generally recommend AGAINST because
|
|
hiring
|
|
|
according to our policy, this could put the
|
|
|
|
|
Company in an uncompetitive position in terms
|
|
|
|
|
of hiring prospective talents due to the rigid
|
|
|
|
|
requirements of the proposal.
|
|
Adopt merit-based hiring
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
according to our policy, this could put the
|
|
|
|
|
Company in an uncompetitive position in terms
|
|
|
|
|
of hiring prospective talents due to the rigid
|
|
|
|
|
requirements of the proposal.
|
|
Become a public benefit
|
World
|
|
We generally recommend AGAINST because
|
|
corporation
|
|
|
according to our policy, the proposal is not
|
|
|
|
|
necessary and is not in the best long-term
|
|
|
|
|
interest of the Company and its shareholders.
|
|
Provide a human rights
|
World
|
|
We generally recommend a vote AGAINST
|
|
impact assessment
|
|
|
because, while human rights impact
|
|
|
|
|
assessments (HRIAs) are valuable for identifying
|
|
|
|
|
and mitigating risks, mandating rigid reporting
|
|
|
|
|
can undermine their effectiveness. Such
|
|
|
|
|
reporting requirements may encourage
|
|
|
|
|
superficial compliance without meaningful
|
|
|
|
|
human rights improvements.
|
|
Provide a report promoting
|
World
|
|
We generally recommend AGAINST this proposal
|
|
DEI practices
|
|
|
because, in accordance with our policy and
|
|
|
|
|
considering the requirements that the Company
|
|
|
|
|
already abides by with regards to equal
|
|
|
|
|
employment opportunity, we believe its
|
|
|
|
|
approval would impose unnecessary costs and
|
|
|
|
|
administrative burdens on the Company.
|
|
Report on abortion policy
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
according to our policy, providing a report on a
|
|
|
|
|
highly sensitive topic could cause divisiveness
|
|
|
|
|
among the Company, its employees, customers
|
|
|
|
|
and shareholders. The complexity of views
|
|
|
|
|
drawn from reporting the policies on abortion or
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 55
|
Wealth-Focused Policy Overview
|
|
|
|
something similar could pose significant
|
|
|
|
|
reputational and legal risks for the Company
|
|
|
|
|
which could subsequently affect its operations
|
|
|
|
|
and performance.
|
|
Report on collective
|
World
|
|
We generally recommend AGAINST this proposal
|
|
bargaining/union relations
|
|
|
because, in line with our policy and given the
|
|
|
|
|
Company's compliance with applicable laws
|
|
|
|
|
regarding freedom of association, we believe its
|
|
|
|
|
approval would not provide additional benefits
|
|
|
|
|
to employees or create further value for
|
|
|
|
|
shareholders.
|
|
Report on fetal tissue use
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
according to our policy, providing a report on a
|
|
|
|
|
highly sensitive topic could cause divisiveness
|
|
|
|
|
among the Company, its employees, customers
|
|
|
|
|
and shareholders. The complexity of views
|
|
|
|
|
drawn from reporting the policies on fetal tissue
|
|
|
|
|
use or something similar could pose significant
|
|
|
|
|
reputational and legal risks for the Company
|
|
|
|
|
which could subsequently affect its operations
|
|
|
|
|
and performance.
|
|
Report on human
|
World
|
|
We generally recommend AGAINST because
|
|
trafficking
|
|
|
according to our policy and given the Company’s
|
|
|
|
|
current policies which effectively articulate their
|
|
|
|
|
long-standing support for, and continued
|
|
|
|
|
commitment to, human rights, the proposal
|
|
|
|
|
would be duplicative and unnecessary.
|
|
Report on in vitro
|
World
|
|
We generally recommend AGAINST because
|
|
fertilization
|
|
|
according to our policy, providing a report on a
|
|
|
|
|
highly sensitive topic could cause divisiveness
|
|
|
|
|
among the Company, its employees, customers
|
|
|
|
|
and shareholders. The complexity of views
|
|
|
|
|
drawn from reporting the policies on abortion or
|
|
|
|
|
something similar could pose significant
|
|
|
|
|
reputational and legal risks for the Company
|
|
|
|
|
which could subsequently affect its operations
|
|
|
|
|
and performance.
|
|
Report on
|
World
|
|
We generally recommend AGAINST because
|
|
prison/slave/child labor
|
|
|
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
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 56
|
Wealth-Focused Policy Overview
|
|
|
|
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 sexual
|
World
|
|
We generally recommend AGAINST because
|
|
harassment complaints
|
|
|
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.
|
|
Report on the costs/risks of
|
World
|
|
We generally recommend AGAINST this proposal
|
|
DEI practices
|
|
|
because, in accordance with our policy,
|
|
|
|
|
conducting a cost/benefit report or a stand-
|
|
|
|
|
alone DEI audit by the Company or a group
|
|
|
|
|
acting on its behalf could potentially uncover
|
|
|
|
|
violations of regulations or laws, which could
|
|
|
|
|
pose both legal and reputational risks.
|
|
|
|
|
Additionally, we are concerned that such report
|
|
|
|
|
could, in our highly litigious society, serve as a
|
|
|
|
|
roadmap for lawsuits against the Company,
|
|
|
|
|
potentially leading to significant costs for
|
|
|
|
|
shareholders in the long term.
|
|
Report on worker
|
World
|
|
We generally recommend AGAINST because
|
|
misclassification
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
would not create additional benefits to the
|
|
|
|
|
employees or value for the shareholders.
|
|
Request the company
|
World
|
|
We generally recommend AGAINST this Proposal
|
|
cease or re-evaluate DEI
|
|
|
because, according to our policy, requests to
|
|
activities
|
|
|
cease or re-evaluate DEI activities risk
|
|
|
|
|
undermining the significant benefits that
|
|
|
|
|
diversity, equity, and inclusion bring to the
|
|
|
|
|
company. Scaling back these efforts could also
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 57
|
Wealth-Focused Policy Overview
|
|
|
|
negatively affect talent attraction, retention, and
|
|
|
|
|
overall company performance.
|
|
|
|
|
|
|
Rescind the racial equity
|
World
|
|
We generally recommend a vote AGAINST
|
|
audit
|
|
|
because, according to our policy, the proposed
|
|
|
|
|
rescinding of the racial audit undermines efforts
|
|
|
|
|
to assess the impacts of the Company’s diversity,
|
|
|
|
|
equity, and inclusion (DEI) practices. Racial
|
|
|
|
|
audits are essential in identifying and addressing
|
|
|
|
|
disparities, and reversing this initiative would
|
|
|
|
|
limit shareholders' ability to evaluate the
|
|
|
|
|
materiality and effectiveness of the Company’s
|
|
|
|
|
DEI efforts.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 58
|
Wealth-Focused Policy Overview
Proposals by shareholders | Legal and Compliance
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt exclusive forum
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
bylaws
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
Relinquish intellectual
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
property
|
|
|
|
|
|
|
|
according to our policy the proposal would not
|
|
|
|
|
|
|
|
|
|
|
|
meaningfully improve the Company’s disclosure
|
|
|
|
|
|
|
|
|
|
|
|
and reporting policies in place but is rather
|
|
|
|
|
|
|
|
|
|
|
|
duplicative of its current efforts in addressing
|
|
|
|
|
|
|
|
|
|
|
|
issues with product access and pricing.
|
|
|
Report on concealment
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
clauses
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
Report on employee
|
|
World
|
|
|
|
|
We generally recommend AGAINST this proposal
|
|
|
arbitration claims
|
|
|
|
|
|
|
|
because, in accordance with our policy, it
|
|
|
|
|
|
|
|
|
|
|
|
presents a one-size-fits-all approach that could
|
|
|
|
|
|
|
|
|
|
|
|
adversely impact the Company's ability to
|
|
|
|
|
|
|
|
|
|
|
|
effectively use arbitration.
|
|
|
Report on patent process
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy the proposal would not
|
|
|
|
|
|
|
|
|
|
|
|
|
meaningfully improve the Company’s disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
and reporting policies in place and we do not
|
|
|
|
|
|
|
|
|
|
|
|
|
believe the report would result in any additional
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit to shareholders.
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 59
|
Wealth-Focused Policy Overview
|
Report on whistleblowers
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
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.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 60
|
Wealth-Focused Policy Overview
Proposals by shareholders | M&A / Structure
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Make a self-tender offer
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, the proposal is not
|
|
|
|
|
|
|
|
|
|
|
|
|
necessary and is not in the best long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
interest of the Company and its shareholders.
|
|
|
|
Remove an antitakeover
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
provision(s)
|
|
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according to our policy, removal of the
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Company's antitakeover provisions may leave
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the Company vulnerable to a hostile takeover.
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Additionally, the current antitakeover provisions
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provide more time for management to consider
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offers and negotiate better terms.
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Request an M&A /
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World
|
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This proposal is considered on a case-by-case
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restructure
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basis by the guidelines committee.
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Ratify a poison pill
|
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World
|
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We generally recommend a vote FOR because
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according to our policy, approval of the proposal
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will acknowledge both the advantages and
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inherent risks of implementing a shareholder
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rights plan, or poison pill. While these plans can
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deter hostile takeovers, they also carry the risk
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of management entrenchment in some cases.
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Ensuring that shareholders are given a voice on
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the advisability of such a plan is crucial to
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safeguarding the Company from these risks,
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promoting transparency, and maintaining a
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balance between protecting shareholder
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interests and preventing potential misuse of the
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plan.
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|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 61
|
Wealth-Focused Policy Overview
Proposals by shareholders | Mutual Fund
|
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Proposal
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Region(s) to
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|
Region(s) to
|
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Vote Recommendation
|
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Include
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Exclude
|
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|
|
Convert the closed-end
|
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World
|
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We generally recommend a vote AGAINST this
|
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fund to an open-end fund
|
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|
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proposal because, according to our policy, a
|
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closed-end fund structure tends to provide
|
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higher returns to shareholders, as the value of
|
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shares is influenced by market dynamics, which
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can result in trading at a premium or discount to
|
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NAV. Additionally, closed-end funds often
|
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generate higher income by utilizing leverage,
|
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making them particularly attractive to income-
|
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focused investors.
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|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 62
|
Wealth-Focused Policy Overview
Proposals by shareholders | Other
|
|
Proposal
|
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|
Region(s) to
|
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|
Region(s) to
|
|
|
Vote Recommendation
|
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|
Include
|
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|
Exclude
|
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|
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|
|
Adopt MacBride Principles,
|
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|
World
|
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|
|
We generally recommend AGAINST because
|
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|
Sullivan Principles, or
|
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|
|
adoption of this proposal would be duplicative
|
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|
similar
|
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|
and would make the Company unnecessarily
|
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|
|
accountable to different sets of overlapping fair
|
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employment guidelines that are already covered
|
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in its policies.
|
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|
Approve other company
|
|
World
|
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|
|
This proposal is considered on a case-by-case
|
|
|
policies
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
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|
|
Disassociate from industry
|
|
|
World
|
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|
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|
|
We generally recommend AGAINST because
|
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|
|
associations
|
|
|
|
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|
|
according to our policy, companies benefit from
|
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|
|
industry associations, especially when it comes
|
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|
|
to influential policies that can directly affect
|
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|
|
businesses. As such, disassociation from such
|
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|
|
groups could potentially pose potential
|
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|
|
reputational and systemic risks that could be
|
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|
|
detrimental to the Company’s business in the
|
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|
|
long-run.
|
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|
|
Prepare an independent
|
|
World
|
|
|
|
|
We generally recommend AGAINST this proposal
|
|
|
third-party audit
|
|
|
|
|
|
|
|
because, in accordance with our policy,
|
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|
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|
|
|
|
conducting a stand-alone audit by the Company
|
|
|
|
|
|
|
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|
|
or a group acting on its behalf could potentially
|
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|
|
|
|
|
|
|
|
|
|
reveal violations of regulations and laws, which
|
|
|
|
|
|
|
|
|
|
|
|
could be legally and reputationally problematic.
|
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|
|
|
|
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|
|
|
|
Additionally, we are concerned that such an
|
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|
|
|
|
|
|
|
|
|
|
audit could, in our highly litigious society,
|
|
|
|
|
|
|
|
|
|
|
|
provide a roadmap for lawsuits against the
|
|
|
|
|
|
|
|
|
|
|
|
Company, which could result in significant costs
|
|
|
|
|
|
|
|
|
|
|
|
for shareholders over the long term.
|
|
|
Report on another matter
|
|
|
World
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
Report on key-person risk
|
|
World
|
|
|
|
|
We generally recommend AGAINST the
|
|
|
|
|
|
|
|
|
|
|
|
proposal, because according to our policy, its
|
|
|
|
|
|
|
|
|
|
|
|
approval would put the Company at a
|
|
|
|
|
|
|
|
|
|
|
|
competitive disadvantage. The disclosure
|
|
|
|
|
|
|
|
|
|
|
|
requested would make sensitive information
|
|
|
|
|
|
|
|
|
|
|
|
publicly available, potentially undermining the
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 63
|
Wealth-Focused Policy Overview
|
|
|
|
execution of the Company’s business strategy
|
|
|
|
|
and hindering the recruitment and retention of
|
|
|
|
|
top management talent.
|
|
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 | 64
|
Wealth-Focused Policy Overview
Proposals by shareholders | Politics
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Report on charitable
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST this proposal
|
|
|
|
contributions
|
|
|
|
|
|
|
|
|
because, in accordance with our policy, the
|
|
|
|
|
|
|
|
|
|
|
|
|
Company already carefully evaluates and
|
|
|
|
|
|
|
|
|
|
|
|
|
reviews its charitable activities, and makes
|
|
|
|
|
|
|
|
|
|
|
|
|
information about its corporate giving publicly
|
|
|
|
|
|
|
|
|
|
|
|
|
available. We do not believe that implementing
|
|
|
|
|
|
|
|
|
|
|
|
|
the proposal would justify the administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
costs and efforts, nor would it provide a
|
|
|
|
|
|
|
|
|
|
|
|
|
meaningful benefit to the Company’s
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders.
|
|
|
|
Report on government
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
financial support
|
|
|
|
|
|
|
|
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.
|
|
|
Report on lobbying
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
expenditures
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
Report on partnerships
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
with political (or globalist)
|
|
|
|
|
|
|
|
according to our policy and given the current
|
|
|
organizations
|
|
|
|
|
|
|
|
applicable laws and regulations that the
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 65
|
Wealth-Focused Policy Overview
|
|
|
|
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 political
|
World
|
|
We generally recommend AGAINST because
|
|
contributions
|
|
|
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.
|
|
Report on public policy
|
World
|
|
We generally recommend AGAINST because
|
|
advocacy
|
|
|
according to our policy and given the Company’s
|
|
|
|
|
policies and oversight mechanisms related to its
|
|
|
|
|
political contributions and activities, we believe
|
|
|
|
|
that the shareholder proposal is unnecessary
|
|
|
|
|
and will not result in any additional benefit to
|
|
|
|
|
the shareholders. Rather, the proposal promotes
|
|
|
|
|
impractical and imprudent actions that would
|
|
|
|
|
negatively affect the business and results.
|
|
Revoke a public policy
|
World
|
|
We generally recommend AGAINST because
|
|
endorsement
|
|
|
according to our policy, political endorsement
|
|
|
|
|
and spending is an integral part of a business, as
|
|
|
|
|
Companies should have a voice on policies
|
|
|
|
|
affecting them. As such, approval of this
|
|
|
|
|
proposal will strictly limit the Company’s
|
|
|
|
|
flexibility in supporting the advocacies that are
|
|
|
|
|
congruent with its business.
|
|
Support a public policy
|
World
|
|
We generally recommend AGAINST because
|
|
endorsement
|
|
|
according to our policy, although the Company
|
|
|
|
|
must comply with federal, state, and local
|
|
|
|
|
campaign finance and lobbying regulations that
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 66
|
Wealth-Focused Policy Overview
are currently in place, we believe that political endorsements, often in the form of contributions, increase the possibility of misalignment with corporate values which in turn could lead to reputational risks.
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 67
|
Wealth-Focused Policy Overview
Proposals by shareholders | Shareholder Rights
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt a fair
|
|
|
Canada
|
|
|
|
|
|
We generally recommend FOR when the policy
|
|
|
|
elections/advance notice
|
|
|
|
|
|
|
|
|
stipulates that nominations must be submitted
|
|
|
|
bylaw
|
|
|
|
|
|
|
|
|
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 a fair
|
|
United States
|
|
|
|
|
We generally recommend FOR when the policy
|
|
|
elections/advance notice
|
|
|
|
|
|
|
|
stipulates that nominations must be submitted
|
|
|
bylaw
|
|
|
|
|
|
|
|
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/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
|
|
|
|
|
|
|
|
|
|
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companies. We believe that implementing this
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bylaw could undermine the integrity of the
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director election process.
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Allow virtual-only
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World
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We recommend AGAINST this Proposal, because
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shareholder meetings
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according to our policy, virtual meetings should
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complement, not replace, in-person shareholder
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meetings, as relying solely on them may
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undermine transparency and shareholder
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participation.
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Establish the right to call a
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World
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We generally recommend FOR if the proposal
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special meeting
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will strengthen shareholder rights (i.e. lower the
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threshold required to call a special meeting).
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Introduce the right to act
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World
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We generally recommend FOR because
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by written consent
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according to our policy, the right to act on
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written consent allows an increased
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participation of shareholders in the voting
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process, thereby democratizing voting and
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|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 68
|
Wealth-Focused Policy Overview
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giving shareholders the right to act
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independently from the management.
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Oppose the right to act by
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World
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We generally recommend AGAINST because
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written consent
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according to our policy, the right to act on
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written consent allows an increased
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participation of shareholders in the voting
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process, thereby democratizing voting and
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giving the shareholders the right to act
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independently from the management.
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Require shareholder
|
World
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We generally recommend FOR because
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approval for bylaw
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|
according to our policy, approval of the proposal
|
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amendments
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will ensure that shareholders have a voice in
|
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revising or adopting the bylaws which could
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compromise their interests.
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|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 69
|
Wealth-Focused Policy Overview
Proposals by shareholders | Voting
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Proposal
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Region(s) to
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Region(s) to
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Vote Recommendation
|
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Include
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Exclude
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Adopt a majority vote for
|
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World
|
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We generally recommend a vote FOR because
|
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director election
|
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according to our policy, a majority vote
|
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requirement in boardroom elections enhance
|
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|
director accountability to shareholders. This
|
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standard ensures that shareholder
|
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dissatisfaction with director performance has
|
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tangible consequences, transforming the
|
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election process from a mere formality into one
|
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that truly reflects shareholders' voices.
|
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Adopt confidential voting
|
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World
|
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We generally recommend FOR because
|
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according to our policy, approval of the proposal
|
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|
|
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will preserve the confidentiality and integrity of
|
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vote outcomes.
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Approve cumulative voting
|
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|
World
|
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We generally recommend AGAINST because
|
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according to our policy cumulative voting could
|
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make it possible for an individual shareholder or
|
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group of shareholders with special interests to
|
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elect one or more directors to the Company’s
|
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Board of directors to represent their particular
|
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|
|
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|
interests. Such a shareholder or group of
|
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|
|
|
|
|
|
|
|
|
|
shareholders could have goals that are
|
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|
inconsistent, and could conflict with, the
|
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interests and goals of the majority of the
|
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Company’s shareholders.
|
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|
Approve/increase
|
|
World
|
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|
|
|
We generally recommend AGAINST because
|
|
|
supermajority voting
|
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|
|
|
|
|
|
according to our policy, a simple majority vote
|
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|
|
|
|
|
|
|
|
|
|
will strengthen the Company’s corporate
|
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|
|
|
|
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|
|
|
|
governance practice. Contrary to supermajority
|
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|
|
|
|
|
|
|
|
|
voting, a simple majority standard will give the
|
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|
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|
|
|
shareholders equal and fair representation in
|
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|
the Company by limiting the power of
|
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|
|
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|
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|
|
shareholders who own a large stake in the
|
|
|
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|
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|
|
entity, therefore, paving the way for a more
|
|
|
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|
|
|
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|
|
|
meaningful voting outcome.
|
|
|
Eliminate cumulative
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
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|
|
voting
|
|
|
|
|
|
|
|
|
according to our policy cumulative voting could
|
|
|
|
|
|
|
|
|
|
|
|
|
make it possible for an individual shareholder or
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 70
|
Wealth-Focused Policy Overview
|
|
|
|
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.
|
|
Promote equal voting
|
World
|
|
We generally recommend FOR because
|
|
rights
|
|
|
according to our policy, a differential in voting
|
|
|
|
|
power may have the effect of denying
|
|
|
|
|
shareholders the opportunity to vote on matters
|
|
|
|
|
of critical economic importance to them. In
|
|
|
|
|
order to provide equal voting right to all
|
|
|
|
|
shareholders, we prefer that companies do not
|
|
|
|
|
utilize multiple class capital structures.
|
|
Restrict nomination of
|
World
|
|
We generally recommend a vote FOR because,
|
|
directors
|
|
|
according to our policy, a simple majority
|
|
|
|
|
requirement in director elections, combined
|
|
|
|
|
with a mandatory resignation policy and
|
|
|
|
|
prohibition on the renomination of directors,
|
|
|
|
|
ensures that the election results accurately
|
|
|
|
|
reflect shareholder sentiment. Specifically, this
|
|
|
|
|
approach addresses situations where a director
|
|
|
|
|
receives less than a majority of votes, aligning
|
|
|
|
|
the election outcome with shareholder
|
|
|
|
|
expectations and maintaining effective
|
|
|
|
|
governance.
|
|
Tabulate proxy voting
|
World
|
|
We generally recommend FOR because
|
|
|
|
|
according to our policy, adoption of proxy
|
|
|
|
|
tabulation simplifies the voting process without
|
|
|
|
|
compromising transparency or shareholder
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 71
|
Wealth-Focused Policy Overview
participation. This streamlined approach ensures that shareholder votes are accurately counted and reported, making it easier for investors to engage in the decision-making process. At the same time, it preserves the integrity and transparency of the voting process, ensuring that all shareholders have an equal opportunity to influence key decisions while promoting efficient governance practices.
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 72
|
Wealth-Focused Policy Overview
IV. Legal Disclaimer
DISCLAIMER © 2025 Egan-Jones Proxy Services, a division of Egan-Jones Ratings Company and/or its affiliates. All Rights Reserved. This document is intended to provide a general overview of Egan-Jones Proxy Services’ proxy voting methodologies. It is not intended to be exhaustive and does not address all potential voting issues or concerns. Egan-Jones Proxy Services’ proxy voting methodologies, as they apply to certain issues or types of proposals, are explained in more detail in reference files on Egan-Jones Proxy Services’ website – http://www.ejproxy.com . The summaries contained herein should not be relied on and a user or client, or prospective user or client, should review the complete methodologies and discuss their application with a representative of Egan-Jones Proxy Services. These methodologies have not been set or approved by the U.S. Securities and Exchange Commission or any other regulatory body in the United States or elsewhere. No representations or warranties, express or implied, are made regarding the accuracy or completeness of any information included herein. In addition, Egan-Jones Proxy Services shall not be liable for any losses or damages arising from, or in connection with, the information contained herein, or the use of, reliance on, or inability to use any such information. Egan-Jones Proxy Services expects its clients and users to possess sufficient experience and knowledge to make their own decisions entirely independent of any information contained in this document or the methodology reference files contained on http://www.ejproxy.com .
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 73
|
ESG
Thematic Voting Policy Guidelines
2026
|
About Glass Lewis ....................................................................................................
|
5
|
|
Summary of Changes for 2026 ...............................................................................
|
6
|
|
Introduction ..............................................................................................................
|
7
|
|
Election of Directors.................................................................................................
|
8
|
|
Board of Directors ..............................................................................................................................................
|
8
|
|
Board Composition............................................................................................................................................
|
8
|
|
Board Independence.......................................................................................................................................
|
10
|
|
Board Committee Composition ....................................................................................................................
|
10
|
|
Board Diversity, Tenure and Refreshment...................................................................................................
|
10
|
|
Director Overboarding....................................................................................................................................
|
11
|
|
Board Size ..........................................................................................................................................................
|
11
|
|
Classified Boards ..............................................................................................................................................
|
12
|
|
Controlled Companies ....................................................................................................................................
|
12
|
|
Significant Shareholders .................................................................................................................................
|
12
|
|
Director Performance and Oversight ...........................................................................................................
|
12
|
|
Environmental and Social Oversight and Performance ............................................................................
|
13
|
|
Board-Level Oversight of Environmental and Social Risks....................................................................................
|
13
|
|
Climate Risk ....................................................................................................................................................................
|
13
|
|
Stakeholder Considerations........................................................................................................................................
|
14
|
|
Review of Risk Management Controls..........................................................................................................
|
14
|
|
Slate Elections ...................................................................................................................................................
|
15
|
|
Board Responsiveness ....................................................................................................................................
|
15
|
|
Majority-Supported Shareholder Proposals ............................................................................................................
|
15
|
|
Significantly Supported Shareholder Proposals .....................................................................................................
|
15
|
|
2026 ESG Thematic Voting Policy Guidelines
|
2
|
|
Separation of the Roles of CEO and Chair ..................................................................................................
|
15
|
|
Governance Following an IPO or Spin-Off..................................................................................................
|
16
|
|
Financial Reporting ................................................................................................
|
17
|
|
Accounts and Reports .....................................................................................................................................
|
17
|
|
Income Allocation (Distribution of Dividends)............................................................................................
|
17
|
|
Appointment of Auditors and Authority to Set Fees .................................................................................
|
17
|
|
Compensation ........................................................................................................
|
18
|
|
Compensation Reports and Compensation Policies.................................................................................
|
18
|
|
Linking Compensation to Environmental and Social Issues .................................................................................
|
18
|
|
Long-Term Incentive Plans .............................................................................................................................
|
18
|
|
Performance-Based Equity Compensation .................................................................................................
|
19
|
|
Director Compensation...................................................................................................................................
|
19
|
|
Retirement Benefits for Directors ..................................................................................................................
|
19
|
|
Limits on Executive Compensation...............................................................................................................
|
20
|
|
Pay-for-Performance ........................................................................................................................................
|
20
|
|
Governance Structure............................................................................................
|
22
|
|
Amendments to the Articles of Association ................................................................................................
|
22
|
|
Anti-Takeover Measures .................................................................................................................................
|
22
|
|
Multi-Class Share Structures........................................................................................................................................
|
22
|
|
Cumulative Voting.........................................................................................................................................................
|
22
|
|
Fair Price Provision........................................................................................................................................................
|
23
|
|
Supermajority Vote Requirements .............................................................................................................................
|
23
|
|
Poison Pills (Shareholder Rights Plan) .......................................................................................................................
|
23
|
|
Increase in Authorized Shares .......................................................................................................................
|
24
|
|
Issuance of Shares ............................................................................................................................................
|
25
|
|
Repurchase of Shares ......................................................................................................................................
|
25
|
|
Reincorporation ................................................................................................................................................
|
25
|
|
Tax Havens......................................................................................................................................................................
|
25
|
|
2026 ESG Thematic Voting Policy Guidelines
|
3
|
|
Advance Notice Requirements ......................................................................................................................
|
26
|
|
Transaction of Other Business .......................................................................................................................
|
26
|
|
Anti-Greenmail Proposals...............................................................................................................................
|
26
|
|
Virtual-Only Shareholder Meetings ..............................................................................................................
|
26
|
|
Mergers, Acquisitions & Contested Meetings ....................................................
|
27
|
|
Shareholder Proposals...........................................................................................
|
28
|
|
Governance Proposals ....................................................................................................................................
|
28
|
|
Environmental Proposals ................................................................................................................................
|
28
|
|
Say on Climate ..................................................................................................................................................
|
29
|
|
Shareholder Proposals .................................................................................................................................................
|
29
|
|
Management Proposals ...............................................................................................................................................
|
29
|
|
Social Proposals................................................................................................................................................
|
29
|
|
Compensation Proposals................................................................................................................................
|
30
|
|
Connect with Glass Lewis ......................................................................................
|
31
|
|
2026 ESG Thematic Voting Policy Guidelines
|
4
|
Glass Lewis is the world’s choice for governance solutions. We enable institutional investors and publicly listed companies to make informed decisions based on research and data. We cover 30,000+ meetings each year, across approximately 100 global markets. Our team has been providing in-depth analysis of companies since 2003, relying solely on publicly available information to inform its policies, research, and voting recommendations.
Our customers include the majority of the world’s largest pension plans, mutual funds, and asset
managers, collectively managing over $40 trillion in assets. We have teams located across the United States, Europe, and Asia-Pacific giving us global reach with a local perspective on the important governance issues.
Investors around the world depend on Glass Lewis’ Viewpoint platform to manage their proxy voting, policy implementation, recordkeeping, and reporting. Our industry leading Proxy Paper product provides comprehensive research and voting recommendations weeks ahead of voting deadlines. Public companies can also use our innovative Report Feedback Statement to deliver their opinion on our proxy research directly to the voting decision makers at every investor client in time for voting decisions to be made or changed.
The research team engages extensively with public companies, investors, regulators, and other industry stakeholders to gain relevant context into the realities surrounding companies, sectors, and the market in general. This enables us to provide the most comprehensive and pragmatic insights to our customers.
Join the Conversation
Glass Lewis is committed to ongoing engagement with all market participants.
info@glasslewis.com | www.glasslewis.com
|
2026 ESG Thematic Voting Policy Guidelines
|
5
|
Summary of Changes for 2026
On an ongoing basis, Glass Lewis extensively reviews and consults with stakeholders and clients on its policy guidelines. Annually, Glass Lewis updates its policy guidelines in accordance with market trends, developments and the results of our ongoing consultations.
Board Diversity
The ESG Policy will now oppose the chair of the nominating committee, regardless of gender, for board gender diversity concerns, rather than only targeting male members of the committee. It has also standardized its approach to this matter such that it will look for boards to ensure that they are 30% diverse, unless a regional requirement requires that boards maintain a higher level, in which case, it will default to that requirement.
Human Rights Considerations
The ESG Policy has streamlined its approach to human rights, and will now oppose the chair of the board in instances that a company has not adopted a human rights policy, instead of requiring that companies be a participant in the United Nations Global Compact (“UNGC”) or adopt a human rights policy that is aligned with the standards set forth by the International Labour Organization (“ILO”) or the Universal Declaration on Human Rights (“UDHR”).
Sustainability Reporting
Given the changing nature of reporting frameworks, the ESG Policy has standardized its approach such that it will now vote against the chair of the committee responsible for overseeing environmental and social issues in instances where companies have not provided comprehensive sustainability reporting. This has replaced the previous policy whereby the ESG Policy will vote against the chair of the board in instances where companies either report against the recommendations of TCFD or in alignment with SASB standards.
Climate Considerations
Although the ESG Policy will continue to vote against the chair of the board in instances where companies have not established any forward-looking GHG emissions reduction targets, it will no longer require that companies adopt a net zero commitment or goal. The ESG Policy will also now vote against the chair of the committee responsible for overseeing environmental and social issues in instances where companies have not disclosed Scope 1 & 2 emissions.
Other Changes
A number of updates have been made to the Glass Lewis Benchmark Policy guidelines, which underpin and inform the ESG Policy. Further details can be found at www.glasslewis.com.
|
2026 ESG Thematic Voting Policy Guidelines
|
6
|
Institutional investors are increasingly recognizing the importance of incorporating material environmental, social, and governance (ESG) factors into their investment processes. Active ownership on ESG issues will typically include also applying these considerations to proxy voting practices, and the ESG Policy allows clients to apply these enhanced ESG considerations when voting at the annual and special meetings of their portfolio companies.
The ESG Policy was designed for clients with a strong focus on environmental and social issues or as a supplemental voting policy for ESG-focused funds. This policy is also ideal for investors who would like to vote in a stakeholder-focused manner.
Implementation of the ESG Policy may vary market-to-market in accordance with regulatory requirements, corporate governance best practices, and other relevant standards in individual markets.
|
2026 ESG Thematic Voting Policy Guidelines
|
7
|
Board of Directors
Boards are established in order to represent shareholders and protect their interests. The ESG Policy seeks boards that have a record for protecting shareholders and delivering value over the medium- and long-term. Boards that wish to protect and enhance the interests of shareholders should have sufficient levels of independence (the percentage varies by local market practice and regulations), boast a record of positive performance, have directors with diverse backgrounds, and appoint new directors that have a depth of relevant experience.
Board Composition
The ESG Policy examines a variety of elements to the board when voting on director elections. The policy looks at each individual on the board and explores their relationship with the company, the company’s executives and with other board members. This is to ensure and determine whether a director has an existing relationship with the company that is likely to impact any decision processes of that board member.
The biographical information provided by the company on the individual director is essential for investors to understand the background and skills of the directors of the board. This information should be provided in the company’s documents well in advance of the shareholder meeting, in order to give shareholders sufficient time to analyze the information. In cases where the company fails to disclose the names or backgrounds of director nominees, the ESG Policy may vote against or abstain from voting on the directors’ elections.
The ESG Policy will vote in favor of governance structures that will drive positive performance and enhance shareholder value. The most crucial test of a board’s commitment to the company and to its shareholders is the performance of the board and its members. The performance of directors in their capacity as board members and as executives of the company, when applicable, and in their roles at other companies where they serve is critical to this evaluation.
Directors are formed into three categories based on an examination of the type of relationship they have with the company. The table below includes a breakdown of how Glass Lewis classifies these director relationships with the company.
|
2026 ESG Thematic Voting Policy Guidelines
|
8
|
|
Insider
|
Affiliate
|
Independent
|
|
|
|
|
|
Someone who serves as a
|
A director who has a material
|
No material financial, familial or
|
|
director and as an employee of
|
financial, familial or other
|
other current relationships with
|
|
the company
|
relationship with the company,
|
the company, it's executives or
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or its executives, but is NOT an
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other board members except
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employee of the company
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for service
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May also include executive
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A director who owns or
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A director who owns, directly or
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chairs (who act as an employee
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controls, directly or indirectly
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indirectly less than 10% of the
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of the company or is paid as an
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20% or more of the company's
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company's voting stock (local
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employee of the company)
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voting stock (except where local
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regulations and best practices
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regulations or best practices set
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may set a different threshold)
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a different threshold).
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A director who has been
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A director who has not been
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employed by the company
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employed by the company for a
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within the past 5 calendar years
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minimum of 5 calendar years
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A director who performs
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A director who is not involved in
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material consulting, legal,
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any Related Party Transactions
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advisory, accounting or other
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(RPT) with the company (most
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professional services for the
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common RPTs - consulting,
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company
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legal, and accounting/advisory
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services)
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>A director who is involved in
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an "Interlocking Directorship"
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Common other reasons the ESG Policy will vote against a director:
(i)A director who attends less than 75% of the board and applicable committee meetings.
(ii)A director who is also the CEO of a company where a serious restatement has occurred after the CEO certified the pre-restatement financial statements.
(iii)An affiliated director when the board is not sufficiently independent in accordance with market best practice standards.
(iv)An affiliate or insider on any of the key committees (audit, compensation, nominating) or an affiliate or insider on any of the key committees and there is insufficient independence on that committee, both of the above can vary in accordance with the markets best practice standards.
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The following conflicts of interests may hinder a director’s performance and may result in a vote against:
(i)A director who sits on an excessive number of public company boards (see the relevant market guidelines for confirmation of the excessive amount).
(ii)Director, or a director whose immediate family member, or the firm at which the director is employed, provides material professional services to the company at any time during the past five years.
(iii)Director, or a director whose immediate family member, engages in airplane, real estate or other similar deals, including perquisite type grants from the company.
(iv)Director with an interlocking directorship.
(v)All board members who served at a time when a poison pill with a term of longer than one year was adopted without shareholder approval within the prior twelve months.
(vi)A director who has received two against recommendations from the Glass Lewis Benchmark Policy for identical reasons within the prior year at different companies.
Board Independence
A board composed of at least two-thirds independent is most effective in protecting shareholders’ interests. Generally, the ESG Policy will vote against responsible directors if the board is less than two-thirds independent, however, this is also dependent on the market best practice standards.
Board Committee Composition
It is best practice to have independent directors serving on the audit, compensation, nominating and governance committees. As such, the ESG Policy will support boards with this structure and encourage change when this is not the case. However, board committee independence thresholds may vary depending on the market.
With respect to the creation of board committees and the composition thereof, the ESG Policy will generally support shareholder proposals requesting that companies create a committee to oversee material E&S issues, such as committees dedicated to climate change oversight or the oversight of public policy risks. The ESG Policy will also generally support shareholder proposals calling for the appointment of directors with specific expertise to the board, such as those requesting the appointment of an environmental expert or an individual with significant human rights expertise.
Board Diversity, Tenure and Refreshment
The ESG Policy acknowledges the importance of ensuring that the board is comprised of directors who have a diversity of skills, backgrounds, thoughts, and experiences. As such, having diverse boards benefits companies greatly by encompassing an array of different perspectives and insights.
In terms of board tenure and refreshment, the ESG Policy strongly supports routine director evaluations, including independent external reviews, and periodic board refreshment in order to enable a company to maintain a fresh set of ideas and business strategies in an ever-changing world and market. Having directors with diverse experiences and skills can strengthen the position of a company within the market. Therefore, the ESG Policy promotes refreshment within boards, as a lack of refreshment can lead to poor company performance. Thus, the ESG Policy may consider voting against directors with a lengthy tenure (e.g. over 12
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years) when we identify significant performance or governance concerns indicating that a fresh perspective would be beneficial and there is no evidence of any plans of future board refreshment.
The ESG Policy will also evaluate a company’s policies and actions with respect to board refreshment and diversity. As a part of this evaluation, we will review the diversity of board members and support shareholder proposals to report on or increase board diversity. The nominating and governance committee, as an agent for the shareholders, is responsible for the governance by the board of the company and its executives. In performing this role, the committee is responsible and accountable for selection of objective and competent board members. To that end, the ESG Policy will: (i) vote against members of the nominating committee in the event that the board has an average tenure of over ten years and the board has not appointed a new nominee to the board in at least five years; (ii) vote against the incumbent nominating committee members in instances where the board of a large- or mid-cap company is comprised of fewer than 30% gender-diverse directors, or the local market requirement for gender diversity where higher; or (iii) vote against the members of the nominating committee where there is not at least one gender-diverse director on the board of a small-cap company.
The ESG Policy conducts a further level of analysis for U.S. companies included in the Russel 1000 index. For these companies, the ESG Policy will vote against members of the nominating and governance committee when they receive a “Poor” score in Glass Lewis’ Diversity Disclosure Assessment. The Diversity Disclosure Assessment is an analysis of companies’ proxy statement disclosure relating to board diversity, skills and the director nomination process. This assessment reflects how a company’s proxy statement presents: (i) the board’s current percentage of racial/ethnic diversity; (ii) whether the board’s definition of diversity explicitly includes gender and/or race/ethnicity; (iii) whether the board has adopted a policy requiring women and minorities to be included in the initial pool of candidates when selecting new director nominees (“Rooney Rule”); and (iv) board skills disclosure.
Director Overboarding
The ESG Policy will generally recommend that shareholders vote against a director who serves as an executive officer (other than executive chair) of any public company while serving on more than one external public company board, a director who serves as an executive chair of any public company while serving on more than two external public company boards, and any other director who serves on more than five public company boards.
Board Size
Although there is not a universally acceptable optimum board size, boards should have a minimum of five directors to ensure sufficient diversity in decision making and to enable the establishment of key committees with independent directors. Further, boards should not be composed of more than 20 directors as the board may suffer as a result of too many voices to be heard and have difficulty reaching consensus on issues with this number of members. As a result, the ESG Policy will generally vote against the chair of the nominating committee at a board with fewer than five directors or more than 20 directors.
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The ESG Policy favors the repeal of staggered boards in favor of the annual election of directors. Staggered boards are generally less accountable to shareholders than annually elected directors to the board. In addition, the annual election of directors encourages board members to focus on protecting the interests of shareholders. Further to this, if shareholders are unsatisfied with board members the annual election of directors allows them to voice these concerns.
Controlled Companies
The ESG Policy allows certain exceptions to the independence standards at controlled companies. The board’s main function is to protect shareholder interests, however, when an individual, entity, or group own more than 50% of the voting shares, the interests of majority shareholders are the interests of that entity or individual. As a result, the ESG Policy does not apply the usual two-thirds independence threshold on controlled companies instead it includes the following guidelines:
(i)As long as insiders and/or affiliates are connected to the controlling entity, the ESG Policy will accept the presence of non-independent board members.
(ii)The compensation, nominating, and governance committees do not need to consist solely of independent directors. However, the compensation committee should not have any insider members, but affiliates are accepted.
(iii)The board does not need an independent chair or an independent lead or presiding director.
(iv)The audit committee should consist solely of independent directors, regardless of the controlled status of the company.
Significant Shareholders
Significant shareholders are either an individual or an entity which holds between 20-50% of a company’s voting power, and the ESG Policy provides that shareholders should be allowed proportional representation on the board and in committees (excluding the audit committee) based on their percentage of ownership.
Director Performance and Oversight
The performance of board members is an essential element to understanding the board’s commitment to the company and to shareholders. The ESG Policy will look at the performance of individuals as directors and executives of the company and of other companies where they have served. Often a director’s past conduct is indicative of future conduct and performance.
The ESG Policy will typically vote against directors who have served on boards or as executives of companies with records of poor performance, inadequate risk oversight, excessive compensation, audit or accounting- related issues, and other actions or indicators of mismanagement. However, the ESG Policy will also reevaluate the directors based on factors such as the length of time that has passed since the incident, the director’s role, and the severity of the issue.
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Environmental and Social Oversight and Performance
The ESG Policy considers the oversight afforded to environmental and social issues. The ESG Policy looks to ensure that companies maintain appropriate board-level oversight of material risks to their operations, including those that are environmental and social in nature. When it is clear that these risks have not been properly managed or mitigated, the ESG Policy may vote against members of the board who are responsible for the oversight of environmental and social risks. In the absence of explicit board oversight of environmental and social issues, the ESG Policy may vote against members of the audit committee. In making these determinations, the ESG Policy will take into account the situation at hand, its effect on shareholder value, as well as any corrective action or other response made by the company.
Board-Level Oversight of Environmental and Social Risks
The insufficient oversight of environmental and social issues can present direct legal, financial, regulatory and reputational risks that could serve to harm shareholder interests. As a result, the ESG Policy promotes oversight structures that ensure that companies are mitigating attendant risks ad capitalizing on related opportunities to the best extent possible.
To that end, the ESG Policy looks to boards to maintain clear oversight of material risks to their operations, including those that are environmental and social in nature. These risks could include, but are not limited to, matters related to climate change, human capital management, diversity, stakeholder relations, and health, safety & environment.
The ESG Policy will review a company’s overall governance practices to identify which directors or board-level committees have been charged with oversight of environmental and/or social issues. Given the importance of the board’s role in overseeing environmental and social risks, the ESG Policy will vote against members of the governance committee that fails to provide explicit disclosure concerning the board’s role in overseeing these issues.
Climate Risk
Given the importance of companies mitigation and management of climate-related risks, the ESG Policy includes specific consideration for companies’ disclosure of and policies concerning climate change. Specifically, the ESG Policy will vote against the chair of the board in instances where companies have not established any forward- looking GHG emissions reduction targets. In this instance, if the chair of the board is also the company’s CEO, the ESG Policy will vote against the chair of the audit committee.
Further, the ESG Policy will oppose the chair of the committee responsible for oversight of environmental and social issues if the company does not have comprehensive sustainability reporting, which is generally defined as reporting on environmental and social issues beyond legal requirements and that is sufficient to allow shareholders to understand a company’s environmental and social initiatives and how it manages attendant risks. Additionally, the ESG Policy will vote against these board members if the company has not disclosed their Scope 1 & 2 emissions.
The ESG Policy also takes into consideration investors’ growing expectation for robust climate and sustainability disclosures. While all companies maintain exposure to climate-related risks, additional consideration should be given to, and disclosure should be provided by, those companies whose own GHG emissions represent a financially material risk. For companies with this increased risk exposure, the ESG Policy evaluates whether companies are providing clear and comprehensive disclosure regarding these risks, including how they are being
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mitigated and overseen. Such information is crucial to allow investors to understand the company’s management of this issue as well as the potential impact of a lower carbon future on the company’s operations.
In line with this view, the ESG Policy will carefully examine the climate-related disclosures provided by large-cap companies with material exposure to climate risk stemming from their own operations,1 as well as companies where their emissions, climate impacts, or stakeholder scrutiny thereof, represent an outsized, financially material risk, in order to assess whether they have produced disclosures in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), IFRS S2 Climate-related Disclosures, or other equivalent climate reporting framework. The ESG Policy will also assess whether these companies have disclosed explicit and clearly defined board-level oversight responsibilities for climate-related issues. In instances where either (or both) of these disclosures are found to be absent or significantly lacking, the ESG Policy may recommend voting against the chair of the committee (or board) charged with oversight of climate-related issues, or if no committee has been charged with such oversight, the chair of the governance committee. Further, the ESG Policy may extend this recommendation on this basis to additional members of the responsible committee in cases where the committee chair is not standing for election due to a classified board, or based on other factors, including the company’s size, industry and its overall governance profile. In instances where appropriate directors are not standing for election, the ESG Policy may, instead, recommend shareholders vote against other matters that are up for a vote, such as the ratification of board acts, or the accounts and reports proposal.
Stakeholder Considerations
In order to drive long-term shareholder value, companies require a social license to operate. A lack of consideration for stakeholders can present legal, regulatory, and reputational risks. With this view, the ESG Policy will vote against the chair of the board in instances where companies have not adopted a human rights policy.
For U.S. companies listed in the S&P 500 index, the ESG Policy will also evaluate whether companies have provided sufficient disclosure concerning their workforce diversity. In instances where these companies have not disclosed their full EEO-1 reports, the ESG Policy will vote against the nominating and governance chair.
Review of Risk Management Controls
The ESG Policy evaluates the risk management function of a public company on a case-by-case basis. Companies, particularly financial firms, should have a dedicated risk committee, or a committee on the board in charge of risk oversight, as well as a chief risk officer who reports directly to that committee, not to the CEO or another executive of the company. When analyzing the risk management practices of public companies, the ESG Policy takes note of any significant losses or write-downs on financial assets and/or structured transactions. In cases where a company has disclosed a sizable loss or write-down, and where the company’s board-level risk committee’s poor oversight contributed to the loss, the ESG Policy will vote against such committee members on that basis. In addition, in cases where a company maintains a significant level of financial risk exposure but
1This policy will generally apply to companies in the following SASB-defined industries: agricultural products, air freight & logistics, airlines, chemicals, construction materials, containers & packaging, cruise lines, electric utilities & power generators, food retailers & distributors, health care distributors, iron & steel producers, marine transportation, meat, poultry & dairy, metals & mining, non-alcoholic beverages, oil & gas, pulp & paper products, rail transportation, road transportation, semiconductors, waste management.
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fails to disclose any explicit form of board-level risk oversight (committee or otherwise), the ESG Policy may vote against the chair of the board on that basis.
Slate Elections
In some countries, in particular Italy, companies elect their board members as a slate, whereby shareholders are unable to vote on the election of an individual director, but rather are limited to voting for or against the board as a whole. The ESG Policy will generally support the slate if no major governance or board-related concerns have been raised in the analysis, and the slate appears to support and protect the best interests of all shareholders.
Board Responsiveness
Majority-Supported Shareholder Proposals
The ESG Policy expects clear action from a board when shareholder proposals receive support from a majority of votes cast (excluding abstentions and broker non-votes). This may include fully implementing the request of the shareholder proposal and/or engaging with shareholders on the issue and providing sufficient disclosures to address shareholder concerns. When a board fails to demonstrate appropriate responsiveness to this issue, the ESG Policy will generally recommend against members of the nominating and governance committee.
Significantly Supported Shareholder Proposals
When shareholder proposals receive significant support (generally more than 30% but less than majority of votes cast), an initial level of board responsiveness is warranted. In instances where a shareholder proposal has received at least 30% shareholder support, the ESG Policy will look to boards to engage with shareholders on the issue and provide disclosure addressing shareholder concerns and outreach initiatives.
At controlled companies and companies that have multi-class share structures with unequal voting rights, the ESG Policy will carefully examine the level of approval or disapproval attributed to unaffiliated shareholders when determining whether board responsiveness is warranted.
Separation of the Roles of CEO and Chair
The separation of the positions of CEO and chair creates a better and more independent governance structure than a combined CEO/chair position. The role of executives is to manage the business based on the course charted by the board. Executives should be in the position of reporting and answering to the board for their performance in achieving their goals as set out by the board. This would become more complicated if they also held the position of chair, as it would be difficult for them to fulfil the duty of being both the overseer and policy setter when they, the CEO/chair control both the agenda and boardroom.
The ESG Policy views an independent chair as better able to oversee the executives of the company and set a pro-shareholder agenda without the management conflicts that a CEO and other executive insiders often face. Such oversight and concern for shareholders allows for a more proactive and effective board of directors that is better able to look out for the interests of shareholders.
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Furthermore, it is the board’s responsibility to select a chief executive to best serve the company and its shareholders and to replace this person when his or her duties have not been appropriately fulfilled. Such a replacement becomes more difficult and happens less frequently when the chief executive is also in the position of overseeing the board.
Even considering the above, the ESG Policy will not vote against CEOs who also chair the board. However, the ESG Policy will generally support separating the positions of CEO and chair whenever the question is posed in the form of a shareholder proposal.
In the absence of an independent chair, the ESG Policy will support the appointment of a presiding or lead independent director with authority to set the agenda for the meeting and to lead sessions. In the case where the company has neither an independent chair nor independent lead director, the ESG Policy may vote against the chair of the governance committee.
Governance Following an IPO or Spin-Off
Companies that have recently completed an initial public offering (IPO), or spin-off should be given adequate time to fully adjust and comply with marketplace listing requirements and meet basic corporate governance standards. The ESG Policy generally allows the company a one-year period following the IPO to comply with these requirements and as such refrains from voting based on governance standards (e.g., board independence, committee membership and structure, meeting attendance, etc.).
However, there are some cases that warrant shareholder action against the board of a company that have completed an IPO or spin-off in the past year. The ESG Policy will evaluate the terms of applicable governing documents when determining the recommendations and whether the shareholders rights will be severely restricted. In order to come to a conclusion the following points will be considered:
1.The adoption of anti-takeover provisions such as a poison pill or classified board;
2.Supermajority vote requirements to amend governing documents;
3.The presence of exclusive forum or fee-shifting provisions;
4.Whether shareholders can call special meetings or act by written consent;
5.The voting standard provided for the election of directors;
6.The ability of shareholders to remove directors without cause;
7.The presence of evergreen provisions in the company’s equity compensation arrangements; and
8.The presence of a multi-class share structure which does not afford common shareholders voting power that is aligned with their economic interest.
Anti-takeover provisions can negatively impact future shareholders who (except for electing to buy or sell the stock) are unable to weigh in on matters that might negatively impact their ownership interest. In cases where the anti-takeover provision was adopted prior to the IPO, the ESG Policy may vote against the members of the board who served when it was adopted if the board:
(i)Did not also commit to submit the anti-takeover provision to a shareholder vote at the company’s next shareholder meeting following the IPO; or
(ii)Did not provide a sound rationale or sunset provision for adopting the anti-takeover provision.
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Accounts and Reports
Excluding situations where there are concerns surrounding the integrity of the statements/reports, the ESG Policy will generally vote for Accounts and Reports proposals.
Where the required documents have not been published at the time that the vote is cast, the ESG Policy will typically abstain from voting on this proposal.
Income Allocation (Distribution of Dividends)
The ESG Policy will generally vote for proposals concerning companies’ distribution of dividends. However, particular scrutiny will be given to cases where the company’s dividend payout ratio is exceptionally low or excessively high relative to its peers, and where the company has not provided a satisfactory explanation for this disparity.
Appointment of Auditors and Authority to Set Fees
The role of the auditor is crucial in protecting shareholder value. Like directors, auditors should be free from conflicts of interest and should assiduously avoid situations that require them to make choices between their own interests and the interests of the shareholders. Because of the importance of the role of the auditor, rotating auditors is an important safeguard against the relationship between the auditor and the company becoming too close, resulting in a lack of oversight due to complacency or conflicts of interest. Accordingly, the ESG Policy will vote against auditor ratification proposals in instances where it is clear that a company’s auditor has not been changed for 20 or more years.
In instances where a company has retained an auditor for fewer than 20 years, the ESG Policy will generally support management’s recommendation for the selection of an auditor, as well as the board’s authority to fix auditor fees. However, there are a number of exceptions to this policy, and the ESG Policy will vote against the appointment of the auditor and/or the authorization of the board to set auditor fees in the following scenarios:
ξThe independence of an incumbent auditor or the integrity of the audit has been compromised.
ξAudit fees combined with audit-related fees total less than one-half of total fees.
ξThere have been any recent restatements or late filings by the company and responsibility for such can be attributed to the auditor (e.g., a restatement due to a reporting error).
ξThe company has aggressive accounting policies.
ξThe company has poor disclosure or lack of transparency in financial statements.
ξThere are other relationships, or issues of concern, with the auditor that might suggest a conflict of interest.
ξThe company is changing auditors as a result of a disagreement between the company and the auditor on a matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures.
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Compensation Reports and Compensation Policies
Depending on the market, compensation report and policy vote proposals may be either advisory or binding (e.g. in the UK a non-binding compensation report based upon the most recent fiscal year is voted upon annually, and a forward-looking compensation policy will be subject to a binding vote every three years).
In all markets, company filings are evaluated closely to determine how well information pertinent to compensation practices has been disclosed, the extent to which overall compensation is tied to performance, which performance metrics have been employed, as well as how the company’s remuneration practices compare to that of its peers.
The ESG Policy will vote against the approval of a compensation report or policy in the following scenarios:
ξThere is a significant disconnect between pay and performance;
ξPerformance goals and metrics are inappropriate or insufficiently challenging;
ξThere is a lack of disclosure regarding performance metrics as well as a lack of clarity surrounding the implementation of these metrics.
ξShort-term (e.g., generally less than three year) performance measurement is weighted excessively in incentive plans;
ξExcessive discretion is afforded to, or exercised by, management or the Compensation Committee to deviate from defined performance metrics and goals in determining awards;
ξEx gratia or other non-contractual payments have been made and the reasoning for this is inadequate.
ξGuaranteed bonuses are established;
ξEgregious or excessive bonuses, equity awards or severance payments have been granted;
ξExcessive increases (e.g. over 10%) in fixed payments, such as salary or pension entitlements, that are not adequately justified
ξWhere there is an absence of structural safeguarding mechanisms such as clawback and malus policies included in the Incentive plan.
Linking Compensation to Environmental and Social Issues
On top of Glass Lewis’ robust evaluation of companies’ compensation plans, the ESG Policy will evaluate if, and to what extent, a company has provided a link between compensation and environmental and social criteria. In most markets, should a company not provide any environmental or social considerations in its remuneration scheme and serious pay-for-performance concerns have been identified, the ESG Policy will vote against the proposed plan. The ESG Policy will also support shareholder resolutions requesting the inclusion of sustainability metrics in executive compensation plans.
Long-Term Incentive Plans
The ESG Policy recognizes the value of equity-based incentive programs. When used appropriately, they provide a means of linking an employee’s pay to a company’s performance, thereby aligning their interests with those of
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shareholders. In addition, equity-based compensation can be an effective way to attract, retain and motivate key employees.
In order to allow for meaningful shareholder review, incentive programs should generally include:
(i)specific and appropriate performance goals;
(ii)a maximum award pool; and
(iii)a maximum award amount per employee.
In addition, the payments made should be reasonable relative to the performance of the business and total compensation paid to those included under the plan should be in line with compensation paid by the company’s peers.
Performance-Based Equity Compensation
The ESG Policy supports performance-based equity compensation plans for senior executives; where it is warranted by both their performance, and that of the company. While it is unnecessary to base equity-based compensation for all employees to company performance, placing such limitations on grants to senior executives is considered advisable (although in specific scenarios equity-based compensation granted to senior executives without performance criteria is acceptable under Benchmark Policy guidelines, such as in the case of moderate incentive grants made in an initial offer of employment). While it is not uncommon for a board to state that tying equity compensation to performance goals may hinder them in attracting, and retaining, talented executives, the ESG Policy takes the stance that performance-based compensation aids in aligning executive interests to that of shareholders, and as such will support the company in achieving its objectives.
The ESG Policy will generally vote in favor of all performance-based option or share schemes; with the exception of plans that include a provision to allow for the re-testing of performance conditions; for which a vote against is recommended.
Director Compensation
The ESG Policy supports non-employee directors receiving an appropriate form, and level, of compensation for the time and effort they spend serving on the board and its committees; and director fees being at a level that allows a company to retain and attract qualified individuals. The ESG Policy compares the cost of director compensation to that of peer companies with similar market capitalizations in the same country so that compensation plans may be evaluated thoroughly, and a fair vote outcome reached.
Retirement Benefits for Directors
The ESG Policy will typically vote against the granting of retirement benefits to non-executive directors. Such extended payments can impair the objectivity and independence of these board members. Initial, and annual fees should be of a level that provides appropriate compensation to directors throughout their service to the company.
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Limits on Executive Compensation
As a general rule, shareholders should not seek to micromanage executive compensation programs. Such matters should be left to the board’s compensation committee. The election of directors, and specifically those who sit on the compensation committee, is viewed as an appropriate mechanism for shareholders to express their support, or disapproval, of board policy on this issue. Further, companies whose pay-for-performance is in line with their peers should be granted the flexibility to compensate their executives in a manner that drives sustainable growth. However, the ESG Policy favors performance-based compensation as an effective means of motivating executives to act in the best interests of shareholders. Performance-based compensation may be limited if a chief executive’s pay is capped at a low level rather than flexibly tied to the performance of the company.
Pay-for-Performance
An integral part of a well-structured remuneration package is a successful link between pay and performance. Glass Lewis’s proprietary pay-for-performance model, which serves as the ESG Policy’s primary quantitative analysis, was developed to better evaluate the link between pay and performance. Generally, remuneration and performance are measured against a peer group of appropriate companies that may overlap, to a certain extent, with a company’s self-disclosed peers. This quantitative analysis provides a consistent framework and historical context to determine how well companies link executive remuneration to relative performance. Glass Lewis’s methodology takes a scorecard-based approach in evaluating pay-and-performance alignment. Final alignment scores are determined by the weighted sum of up to five tests, each with their own severity rating. Overall scores and ratings range as follows:
ξSevere Concern: 0 to 20 points
ξHigh Concern: 21 to 40 points
ξMedium Concern: 41 to 60 points
ξLow Concern: 61 to 80 points
ξNegligible Concern: 81 to 100 points
The individual tests are as follows:
ξTotal vested CEO pay vs. TSR:
ξTotal vested CEO pay vs. financial performance;
ξCEO STI payouts (in relation to maximum opportunity) vs. TSR;
ξCEO LTI payouts (in relation to maximum opportunity) vs. TSR;
oAlternative test for STI and LTI payout: Total vested CEO pay vs. company size measures as multiple of median;
ξQualitative downward modifier.
Separately, a specific comparison between the company’s executive pay and its peers’ executive pay levels may be discussed in the analysis of the remuneration report proposals for additional insight into the score. Likewise, a specific comparison between the company’s performance and its peers’ performance may be reflected in the analysis for further context.
Companies that demonstrate a weaker link (an overall rating of “Severe Concern” or “High Concern”) are more likely to receive a negative recommendation under the ESG Policy; however, other qualitative factors are
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considered in developing recommendations as each company is reviewed on a case-by-case basis. These additional factors include, but are not limited to, the consideration of competitors based in other regions (and, therefore, excluded from the peer group utilized by the model), overall incentive structure, trajectory of the program and disclosed future changes, the operational, economic and business context for the year in review, reasonable payout levels, or the presence of compelling disclosure explaining any deviation from best practice. These factors may provide sufficient rationale for the ESG Policy to recommend in favor of a proposal, even there is an identified disconnect between pay and performance.
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Amendments to the Articles of Association
The ESG Policy will evaluate proposed amendments to a company’s articles of association on a case-by-case basis. The ESG Policy is generally opposed to bundling several amendments under a single proposal as it prevents shareholders from evaluating each amendment on its own merits. In cases, where it is a bundled amendment, the ESG Policy will evaluate each amendment individually and only support the proposal if, in the aggregate, the amendments are in the best interests of shareholders.
Anti-Takeover Measures
Multi-Class Share Structures
The ESG Policy views multi-class share structures as not in the best interests of shareholders and, instead, is in favor of one vote per share. This structure operates as a safeguard for common shareholders by ensuring that those who hold a significant minority of shares are still able to weigh in on issues set forth by the board. The economic stake of each shareholder should match their voting power and that no small group of shareholders, family or otherwise, should have differing voting rights from those of all other shareholders.
The ESG Policy considers a multi-class share structure as having the potential to negatively impact the overall corporate governance of a company. Companies should have share class structures that protect the interests of non-controlling shareholders as well as any controlling entity. Therefore, the ESG Policy will generally vote in favor of recapitalization proposals to eliminate multi-class share structures. Similarly, the ESG Policy will typically vote against proposals to adopt a new class of common stock.
Cumulative Voting
When voting on cumulative voting proposals, the ESG Policy will factor in the independence of the board and the company’s governance structure. Cumulative voting is often found on ballots at companies where independence is lacking and where the appropriate balances favoring the interests of shareholders are not in place. However, cumulative voting increases the ability of minority shareholders to elect a director by allowing shareholders to cast as many shares of stock they own multiplied by the number of directors to be elected. Cumulative voting allows shareholders to cast all their votes for one single nominee, or a smaller number of nominees than up for election, thereby raising the likelihood of electing one or more of their preferred nominees to the board. Accordingly, cumulative voting generally acts as a safeguard for shareholders by ensuring that those who hold a significant minority of shares can elect a candidate of their choosing to the board. As a result, the ESG Policy will typically vote in favor proposals concerning cumulative voting.
However, in the case where the company has adopted a true majority vote standard (i.e., where a director must receive a majority of votes cast to be elected, as opposed to a modified policy indicated by a resignation policy only), the ESG Policy will vote against cumulative voting proposals due to the incompatibility of the two election methods. For companies, that have not adopted the true majority vote standard but have some form of majority voting, the ESG Policy will also vote against cumulative voting proposals if the company has also not adopted anti-takeover provisions and has been responsive to shareholders.
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In instances where a company has not adopted majority voting standards and is facing both an election on the adoption of majority voting and a proposal to adopt cumulative voting, the ESG Policy will support only the majority voting proposal.
Fair Price Provision
Fair price provisions, which are rare, require that certain minimum price and procedural requirements to be observed by any party that acquires more than a specified percentage of a corporation's common stock. The intention of this provision is to protect minority shareholder value when an acquirer seeks to accomplish a merger or other transaction which would eliminate or change the rights of the shareholder. Fair price provisions sometimes protect the rights of shareholders in a takeover situation. However, more often than not they act as an impediment to takeovers, potentially limiting gains to shareholders from a variety of transactions that could potentially increase share price. As a result, the ESG Policy will generally oppose fair price provisions.
Supermajority Vote Requirements
The ESG Policy favors a simple majority voting structure except where a supermajority voting requirement is explicitly intended to protect the rights of minority shareholders in a controlled company. In the case of non- controlled companies, supermajority vote requirements act as impediments to shareholder action on ballot items that are critical to their interests. For example, supermajority vote requirements can strongly limit the voice of shareholders in making decisions on critical matters such as the selling of the business. Supermajority vote requirements can also allow small groups of shareholders to overrule and dictate the will of the majority of shareholders. Thus, having a simple majority is appropriate for protecting the rights of all shareholders.
Poison Pills (Shareholder Rights Plan)
The ESG Policy will generally oppose companies’ adoption of poison pills, as they can reduce management accountability by substantially limiting opportunities for corporate takeovers. As a result, rights plans can prevent shareholders from receiving a buy-out premium for their stock. Generally, the ESG Policy will vote against these plans to protect their financial interests. While boards should be given wide latitude in directing the activities of the company and charting the company’s course, on an issue such as this where the link between the financial interests of shareholders and their right to consider and accept buyout offers is so substantial, shareholders should be allowed to vote on whether or not they support such a plan’s implementation. In certain limited circumstances, the ESG Policy will support a limited poison pill to accomplish a particular objective, such as the closing of an important merger, or a pill that contains a reasonable ‘qualifying offer’ clause.
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Increase in Authorized Shares
Adequate capital stock is important to a company’s operation. When analyzing a request for additional shares, the ESG Policy will typically review four common reasons why a company may need additional capital stock:
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1.
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Stock Split
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Three Metrics:
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(a) Historical stock pre-split price (if any)
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(b) Current price relative to the company’s
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most common trading price over the past
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52 weeks
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(c) Some absolute limits on stock price (that
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will either make the split appropriate or
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would produce an unreasonable price)
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2.
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Shareholder Defenses
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Additional authorized shares could be used to
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bolster takeover defenses such as a poison pill.
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The proxy filings often discuss the usefulness of
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additional shares in defending against a hostile
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takeover.
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3.
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Financing for Acquisitions
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Examine whether the company has a history of
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using stock for acquisitions and attempts to
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determine what levels of stock have generally
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been required to accomplish such transactions.
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4.
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Financing for Operations
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Review the company’s cash position and its
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ability to secure financing through borrowing or
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other means.
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The ESG Policy will generally support proposals when a company could reasonably use the requested shares for financing, stock splits and stock dividends, as having adequate shares to allow management to make quick decisions and effectively operate the business is critical. The ESG Policy favors that, when a company is undertaking significant transactions, management will justify its use of additional shares rather than providing a blank check in the form of large pools of unallocated shares available for any purpose.
Generally, the ESG Policy will support proposals to increase authorized shares up to 100% of the number of shares currently authorized unless, after the increase the company would be left with less than 30% of its authorized shares outstanding. In markets where such authorities typically also authorize the board to issue new shares without separate shareholder approval, the ESG Policy applies the policy described below on the issuance of shares.
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The issuance of additional shares generally dilutes existing shareholders in most circumstances. Further, the availability of additional shares, where the board has discretion to implement a poison pill, can often serve as a deterrent to interested suitors. In cases where a company has not detailed a plan for use of the proposed shares, or where the number of shares far exceeds those needed to accomplish a detailed plan, the ESG Policy will typically vote against the authorization of additional shares. In the case of a private placement, the ESG Policy will also factor in whether the company is offering a discount to its share price.
Generally, the ESG Policy will support proposals to authorize the board to issue shares (with pre-emptive rights) when the requested increase is equal to or less than the current issued share capital. The authority of these shares should not exceed five years unless that is the market best practice. In accordance with the different market practices, the specific thresholds for share issuance can vary. And, as a result, the ESG Policy will vote on these proposals on a case-by-case basis.
The ESG Policy will also generally support proposals to suspend pre-emption rights for a maximum of 5-20% of the issued ordinary share capital of the company, depending on best practice in the country in which the company is located. This authority should not exceed five years, or less for some countries.
Repurchase of Shares
The ESG Policy typically supports proposals to repurchase shares when the plan includes the following provisions:
(i)A maximum number of shares which may be purchased (typically not more than 10-15% of the issued share capital); and
(ii)A maximum price which may be paid for each share (as a percentage of the market price).
Reincorporation
A company is in the best position to determine the appropriate jurisdiction of incorporation. The ESG Policy will factor in several elements when a management proposal to reincorporate the company is put to vote. These elements include reviewing the relevant financial benefits, generally related to incorporate tax treatment, as well as changes in corporate governance provisions, especially those related to shareholder rights, resulting from the change in domicile. In cases where the financial benefits are too small to be meaningful and there is a decrease in shareholder rights, the ESG Policy will vote against the transaction.
Tax Havens
The ESG Policy evaluates a company’s potential exposure to risks related to a company’s tax haven policies on an as-needed basis and will support shareholder proposals requesting that companies report on the risks associated with their use of tax havens or that request that companies adopt policies to discontinue operations or withdraw from tax havens. The ESG Policy will also vote against reincorporation proposals when companies have proposed to redomicile in known tax havens.
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Advance Notice Requirements
Typically, the ESG Policy will recommend vote against provisions that would require advance notice of shareholder proposals or of director nominees. Advance notice requirements typically range between three to six months prior to the annual meeting. These requirements often make it impossible for a shareholder who misses the deadline to present a shareholder proposal or director nominee that may be in the best interests of the company. Shareholders should be able to review and vote on all proposals and director nominees and are able to vote against proposals that appear with little prior notice. Therefore, by setting advance notice requirements it limits the opportunity for shareholders to raise issues that may arise after the window closes.
Transaction of Other Business
In general, the ESG Policy will vote against proposals that put the transaction of other business items proposal up for vote at an annual or special meeting, as granting unfettered discretion is unwise.
Anti-Greenmail Proposals
The ESG Policy will support proposals to adopt a provision preventing the payment of greenmail, which would serve to prevent companies from buying back company stock at significant premiums from a certain shareholder. The anti-greenmail provision helps to protect the company as it requires that a majority of shareholders other than the majority shareholder approve the buyback, thus, eliminating cases where a majority shareholder could attempt to charge a board a large premium for the shares.
Virtual-Only Shareholder Meetings
A growing number of companies have elected to hold shareholder meetings by virtual means only. The ESG Policy supports companies allowing a virtual option alongside an in-person meeting, so long as the shareholder interests are not compromised. Without proper controls, conducting a virtual-only meeting of shareholders could eliminate or significantly limit the rights of shareholders to confront, and ask management on any concerns they may have. When companies decide to only hold virtual-only meetings, the ESG Policy will examine the level of disclosure provided by the company on the virtual meeting procedures and may vote against members of the nominating and governance committee if the company does not provide disclosure assuring that shareholders will be afforded the same rights and opportunities to participate as they would at an in-person meeting.
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Mergers, Acquisitions &
Contested Meetings
For merger and acquisition proposals, the ESG Policy undertakes a thorough examination of all elements of the transactions and determine the transaction’s likelihood of maximizing shareholder return. In order to make a voting recommendation, the ESG Policy will examine the process conducted, the specific parties and individuals involved in negotiating an agreement, as well as the economic and governance terms of the proposal.
In the case of contested merger situations, or board proxy fights, the ESG Policy will evaluate the plan presented by the dissident party and how, if elected, it plans to enhance or protect shareholder value. The ESG Policy will also consider any concerns presented by the board, including any plans for improving the performance of the company, when making the ultimate recommendation. In addition, the ESG Policy will support shareholder proposals asking a company to consider the effects of a merger, spin-off, or other transaction on its employees and other stakeholders.
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The ESG Policy has a strong emphasis on enhancing the environmental, social and governance performance of companies. Accordingly, the ESG Policy will be broadly supportive of environmental and social shareholder proposals aimed at enhancing a company’s policies and performance with respect to such issues. The ESG Policy will carefully examine each proposal’s merits in order to ensure it seeks enhanced environmental disclosure and/or practices, and is not conversely aimed at limiting environmental or social disclosure or practices. Accordingly, the ESG Policy will not support proposals aimed at limiting or rescinding companies’ ESG-related disclosures, goals or initiatives
Governance Proposals
The ESG Policy supports increased shareholder participation and access to a company and its board of directors. Accordingly, the ESG Policy will generally vote in favor of initiatives that seek to enhance shareholder rights, such as the introduction of majority voting to elect directors, the adoption and amendment of proxy access bylaws, the elimination/reduction of supermajority provisions, the declassification of the board, the submission of shareholder rights’ plans to a shareholder vote, and the principle of one share, one vote.
The ESG Policy will also support proposals aimed at increasing the diversity of boards or management as well as those requesting additional information concerning workforce diversity and the adoption of more inclusive nondiscrimination policies. Further, the ESG Policy will support enhanced oversight of environmental and social issues at the board level by supporting resolutions calling for the creation of an environmental or social committee of the board or proposals requesting that the board adopt a subject-matter expert, such as one with deep knowledge and experience in human rights or climate change-related issues. The ESG Policy will also generally vote for proposals seeking to increase disclosure of a company’s business ethics and code of conduct, as well as of its activities that relate to social welfare.
Environmental Proposals
The ESG Policy will generally support proposals regarding the environment, including those seeking improved sustainability reporting and disclosure about company practices which impact the environment. The ESG Policy will vote in favor of increased disclosure of a company’s environmental risk through company-specific disclosure as well as compliance with international environmental conventions and adherence to environmental principles. Similarly, the ESG Policy will support proposals requesting companies develop greenhouse gas emissions reduction goals, comprehensive recycling programs, and other proactive means to mitigate a company’s environmental footprint.
The ESG Policy will also vote for proposals seeking that companies provide certain disclosures or adopt certain policies related to mitigating their climate change-related risks. For example, regardless of industry, the ESG Policy will support proposals requesting that companies disclose information concerning their scenario analyses or that request the company provide disclosure in line with certain globally-recognized environmental and social reporting recommendations. Further, the ESG Policy will support proposals requesting that a company consider energy efficiency and renewable energy sources in its project development and overall business strategy.
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The ESG Policy will also evaluate a company’s impact on the environment, in addition to the regulatory risk a company may face by not adopting environmentally responsible policies.
Say on Climate
Shareholder Proposals
Beginning in 2021, companies began placing management proposals on their ballots that ask shareholders to vote on their climate transition plans, or a Say on Climate vote. The ESG Policy will generally recommend in favor of shareholder proposals requesting that companies adopt a Say on Climate vote.
Management Proposals
When evaluating management-sponsored votes seeking approval of climate transition plans the ESG Policy looks to the board to provide information concerning the governance of the Say on Climate vote. Specifically, the ESG Policy evaluates whether companies provide sufficient disclosure concerning the board’s role in setting strategy in light of this vote, and how the board intends to interpret the vote results for the proposal. In instances where disclosure concerning the governance of the Say on Climate vote is not present, the ESG Policy will either abstain, or, depending on the quality of the plan presented, will vote against the proposal.
The ESG Policy also looks to companies to clearly articulate their climate plans in a distinct and easily understandable document, this disclosure, it is important that companies clearly explain their goals, how their GHG emissions targets support achievement of broader goals (i.e. net zero emissions goals), and any foreseeable obstacles that could hinder their progress on these initiatives.
When evaluating these proposals, the ESG Policy will take into account a variety of factors, including: (i) the request of the resolution (e.g., whether companies are asking shareholders to approve its disclosure or its strategy); (ii) the board’s role in overseeing the company’s climate strategy; (iii) the company’s industry and size;
(iv)whether the company’s GHG emissions targets and the disclosure of these targets appear reasonable in light of its operations and risk profile; and (iv) where the company is on its climate reporting journey (e.g., whether the company has been reporting and engaging with shareholders on climate risk for a number of years or if this is a relatively new initiative). In addition, the ESG Policy will closely evaluate any stated net zero ambitions or targets. If these goals are absent, the ESG Policy will generally vote against management Say on Climate proposals.
Social Proposals
The ESG Policy will support proposals requesting that a company develop sustainable business practices, such as animal welfare policies, human rights policies, and fair lending policies. Furthermore, the ESG Policy will support reporting and reviewing a company’s political and charitable spending as well as its lobbying practices. In addition, the ESG Policy will support proposals requesting that companies cease political spending or associated activities.
The ESG Policy will also generally support enhancing the rights of workers, as well as considering the communities and broader constituents in the areas in which companies do business. Accordingly, the ESG Policy will generally vote for proposals requesting that companies provide greater disclosure regarding impact on local stakeholders, workers’ rights and human rights in general. In addition, the ESG Policy will support proposals for
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companies to adopt or comply with certain codes of conduct relating to labor standards, human rights conventions, and corporate responsibility at large. The ESG Policy will also support proposals requesting independent verification of a company’s contractors’ compliance with labor and human rights standards. In addition, the ESG Policy supports the International Labor Organization standards and encourage companies to adopt such standards in its business operations.
The ESG Policy will provide for a review of the performance and oversight of certain directors in instances in which a company is found to have violated international human rights standards. Pursuant to the ESG Policy, if directors have not adequately overseen the overall business strategy of the company to ensure that basic human rights standards are met or if a company is subject to regulatory or legal action with a foreign government or entity due to human rights violations, the Policy may vote against directors taking into account the severity of the violations and the outcome of the claims.
The ESG Policy also generally votes in favor of proposals seeking increased disclosure regarding public health and safety issues, including those related to product responsibility. In particular, the ESG Policy supports proposals calling for the labeling of the use of genetically modified organisms (GMOs), the elimination or reduction of toxic emissions and use of toxic chemicals in manufacturing, and the prohibition of tobacco sales to minors. The ESG Policy also supports proposals seeking a report on a company’s drug reimportation guidelines, as well as on a company’s ethical responsibility as it relates to drug distribution and manufacture. The ESG Policy further supports proposals related to worker safety and companies’ compliance with internationally recognized human rights or safety standards.
Compensation Proposals
The ESG Policy recognizes that ESG performance factors should be an important component of the overall consideration of proper levels of executive performance and compensation. Therefore, the ESG Policy generally votes in favor of proposals seeking to tie executive compensation to performance measures such as compliance with environmental regulations, health and safety regulations, nondiscrimination laws and compliance with international human rights standards. Furthermore, the ESG Policy will generally support proposals that seek to evaluate overall director performance based on environmental and social criteria.
The ESG Policy will support proposals seeking to prohibit or require more disclosure about stock hedging and pledging by executives. The ESG Policy will also generally support proposals requesting that companies adopt executive stock retention policies and prohibiting the accelerated vesting of equity awards. Furthermore, the ESG Policy will vote in favor of shareholder proposals to link pay with performance, to eliminate or require shareholder approval of golden coffins, and to clawback unearned bonuses. Finally, the ESG Policy will support proposals requesting disclosure from companies regarding gender pay inequity and company initiatives to reduce the gap in compensation paid to women compared to men.
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DISCLAIMER
© 2025 Glass, Lewis & Co., and/or its affiliates. All Rights Reserved.
This document is intended to provide an overview of the Glass Lewis ESG thematic proxy voting policy. These guidelines are meant to be an option for institutional investors interested in aligning their proxy voting with the named theme and can be fully customized by clients to reflect their investment strategies and views.
The information included herein is not intended to be exhaustive and does not address all potential voting issues. Glass Lewis’ proxy voting guidelines, as they generally apply to certain issues or types of proposals, are further explained in supplemental guidelines and reports that are made available on Glass Lewis’ website
–http://www.glasslewis.com. None of Glass Lewis’ guidelines have been set or approved by the U.S. Securities and Exchange Commission or any other regulatory body. Additionally, none of the information contained herein is or should be relied upon as investment advice. The content of this document has been developed based on Glass Lewis’ experience with proxy voting and corporate governance issues, engagement with clients and issuers, and review of relevant studies and surveys, and has not been tailored to any specific person or entity. Glass Lewis’ proxy voting guidelines are grounded in corporate governance best practices, which often exceed minimum legal requirements. Accordingly, unless specifically noted otherwise, a failure to meet these guidelines should not be understood to mean that the company or individual involved has failed to meet applicable legal requirements.
No representations or warranties express or implied, are made as to the accuracy or completeness of any information included herein. In addition, Glass Lewis shall not be liable for any losses or damages arising from or in connection with the information contained herein or the use, reliance on, or inability to use any such information. Glass Lewis expects its subscribers possess sufficient experience and knowledge to make their own decisions entirely independent of any information contained in this document and subscribers are ultimately and solely responsible for making their own decisions, including, but not limited to, ensuring that such decisions comply with all agreements, codes, duties, laws, ordinances, regulations, and other obligations applicable to such subscriber.
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Mirror Voting Policy
Under this policy, the proportionate ownership position 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 fund will leave the proportionate shares 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.
