(PUB) Vanguard Advisor

S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E

Model Portfolios................................................................ 2 Interview: Gregory Davis.................................................. 4 A No-Calorie Spread.......................................................... 7 Performance Review.................................................... 8-11 Learning FromYear One.................................................. 12 Yields in Context............................................................. 13 Dogs and Cats Living Together....................................... 14 Partnership Plan Steady.................................................. 15 PIN 7638* *SEE PAGE 16 JULY 2014

Summertime—Is the Livin’ Easy? IT’S BEEN ONE HECK OF AYEAR SO FAR. Summer’s here, and we have yet to see a pullback in the stock market beyond about a 5.7% decline for 500 Index . Smaller stocks have been even more placid, with SmallCap Index suffering a 5.2% drop at worst and MidCap Index down just 4.9%. But those losses didn’t stick, either for the index funds or their active counterparts. At the end of June, most of Vanguard’s equity funds were at or within fractions of their all-time highs. And while the number means nothing on its face, the fact that Health Care , up 14.5% this year, now sells for more than $200 per share, and several other funds’ prices are over $100, signals that the long-term bull market continues to move ahead. (Don’t forget that these prices, and those of most of Vanguard’s funds, would be even higher if you accounted for all of the distributions taken out over the years.) Don’t get me wrong—the bull hasn’t exactly been charging forward. While the Dow has hit almost a dozen all-time highs so far in 2014, and the S&P 500 even more, the fact is that these gains have come in small increments, in light trading free of much volatility and an environment where many investors remain fearful of the equity markets. So, yes, the livin’ has been very easy—easier than I expected when the year turned. But if there’s a bull that should have expired but hasn’t given up yet, it’s in the bond market, where investors continue to add money despite some of the lowest yields in more than 30 years. At year-end, 10-year Treasurys were yielding more than 3.0%. They’re now closer to 2.5%, and Extended Duration Treasury ETF , the longest-duration Vanguard income fund by far, is up a whopping 19.9% for 2014 after a 19.8% loss last

AVERAGEVANGUARD INVESTOR* June: 1.7% YTD: 6.0%

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

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*See the footnotes on page 2.

DOW JONES INDUSTRIALS June Close: 16826.60

14000 14900 15800 16700 17600

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STANDARD & POOR’S 500 June Close: 1960.23

1600 1700 1800 1900 2000

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NASDAQ COMPOSITE June Close: 4408.18

SEE SUMMERTIME PAGE 3 >

3500 3750 4000 4250 4500

MULTIMANAGERS Explorer Charts New Territory

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3-MO.TREASURY BILLYIELD June Close: 0.02%

VANGUARD HAS TAKEN ITS MULTIMANAGER STRATEGY to a whole new level at Explorer . On June 16, Explorer gained its eighth fund management team. Arrowpoint Partners, a boutique asset manager in Denver, was assigned a 4% portion of Explorer’s $12.4 billion portfolio as money was shifted away from other managers. The fund now has a total of 17 different portfolio managers all contributing to its growing pot of stocks. In its announcement, Vanguard says the addition of the new management team—two veterans from Janus—is “not expected to substantially change the fund’s character,” which is too bad. Explorer could do with some change, having become index-like or worse in its performance. When Vanguard introduced Arrowpoint, it also tried to paint Explorer’s performance in a good light by comparing it to its Lipper peer group as well as its benchmark

0.00% 0.02% 0.04% 0.06% 0.08%

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10-YR.TREASURY NOTE YIELD June Close: 2.52%

2.0% 2.3% 2.6% 2.9% 3.2%

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SEE EXPLORER PAGE 4

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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 24, NO. 7 The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.